The national student loan debt has now surpassed $1.6 trillion and comprises 42% of all consumer debt. Millennials have most of the student debt, which has increased by 130% since 2008. Graduates in Austin, Texas on average finish school with $25,000 in student loan debt.
Buyers Are Afraid Of Their Debt
With all these outstanding balances, it’s no wonder that Austin buyers are afraid that their student loans will prevent them from qualifying for a mortgage payment. Nearly 57% of all millennials (people born between 1981 and 1995) have student debts that they are still making payments on.
The sixth annual “NeighborWorks America at Home” survey reported that a “steady and significant” number of millennials are concerned with how their student debt will impact their ability to buy a house.
Debt-to-Income Ratios and Student Debt
Student debt plays a large role in determining a buyer’s debt-to-income ratio (DTI). DTI determines how much a buyer spends on recurring expenses (home payments, student loans, car payments, etc.) and how much income a buyer earns each month. Most lenders in Austin recommend that buyers stay under a 45% DTI ratio.
There are ways buyers can improve their qualification strength and credit – even if they have student debt.
- Consistent payments: The first is to lower their DTI by making consistent, on-time payments towards their student loan debts.
- Save for a down payment: Buyers should plan for when they would like to purchase a home and build a budget around that timeline. Making a budget and planning early will set them up for success later when they begin house hunting in Austin.
- Talk to a reputable lender: The best way for buyers to know what they qualify for and what they can afford is to talk to a reputable local Austin lender and begin the pre-approval process. There are many different loan types and special first-time homebuyer deals available for buyers with debt. Lenders are the best people to consult to determine which loan type is the best for the buyer’s financial situation, and what options are available to improve their DTI and credit to qualify.
Questions? Contact us to discuss your student debt and loan options available to you at (855) 855-4491 or jvmteam@jvmlending.com.
