I am interested in purchasing my first rental property by the end of the year. I have a decent credit score (700 or so) but I have about 180k in student loans that are in deferment ( I have two masters degrees). I am just recently switch careers to a totally new industry so my salary is pretty low (35k).
My questions are:
- Should I leave my student loans in deferment and continue to save for a down payment for my first property or should I start paying my student loans? I know student loan payments are factored in when being considered for a mortgage so I don't know if making payments will look better to lenders.
- Will I have a hard time qualifying for a loan with my student loan debt being so high and my income being so low? I am pretty much in an apprenticeship program right now so once I am done and get a full time job my salary will increase significantly but that won't be for another year (2016) and I am looking to get a rental property by the end of the year.
Get on the income contingent repayment plan if government backed loans. My banker looks at income/expense ratios for the property.
I was in a similar situation (law/grad school). I got on an income based repayment plan, which made my payments much lower than they would have been. Once you start faithfully making payments, even though you won't be making a dent in your debt, you will start building your credit history.
Between repaying my student loans and staying consistent with my other bills, I was able to get pre-approved for a mortgage for more than I plan on spending.
Debt to income ratio will be a factor in getting a mortgage, as will work history, time in job, etc., but the only way to really find out is to try to get a mortgage. Ask friends who have just bought a house if they can recommend a good mortgage broker. Mine got me pre-approved in a day. This was after trying Lending Tree and only having one lender reach out, only to turn me down for not having two concurrent years in a W-2 job (I was working as a 1099 independent contractor before my present job, which I've had for about a year and a half).
Lastly, ask them specifically about FHA mortgages. You can buy a house with a much lower down payment and the program's very purpose is to help first time home buyers and to help more people become homeowners that otherwise might not be able to.
Thanks Jeremy and Derek!!!
With student loans in deferment, you can still get a loan. However you would need income to satisfy your ability to repay. Also look for downpayment assistance such as the Sapphire Program or whatever is locally available to you. Because if you occupy one unit you can get a duplex or 4-plex and rent the other units out which could possibly help you to qualify. Talk to a local lender with your particular situation.
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