I'm very new to BP, and beginning to learn all I can about real estate investing. I'm very anxious to start working on finding my first deal, but I have a few questions about my debt I'm hoping someone can answer for me.
My wife and I both have student loan debt, in total about 60k. Is this going to affect our ability to get conventional financing? Would it be better to pay it off first? Just want to know what to focus on for the time being.
Also, I have heard it is possible to essentially roll a student loan into the financing of a house, by financing a higher amount and paying off the student loan with the difference. Is this true? Or is it only in the case of a refinance?
The monthly payments will affect your DTI but not significantly. I would recommend sitting down with a banker before doing anything drastic.
Student debt will affect the back end ratio. It is not the loan amount, but the monthly payment. I'm thinking your monthly student loan is about $300. The ratios for 20% down, is 33/38. Meaning the housing payment (P&I) should not be greater than 33% of you and wife gross monthly income. The back end is housing payment plus visa, auto, student, monthly payment. That should not exceed 38%.
@ Terry Lao
Wow, thank you that is exactly what I needed to make my decision.
It also depends on the occupancy. If you are planning to buy a property as your primary at first to house hack (owner-occupied), then the underwriting gets more lenient in terms of ratios. Usually you want to stay under 40% debt-to-income but I see loans at 45% get approved all the time given they have compensating factors. As far as your student loans, most lenders will either factor in the payment amount on your credit report or 1% of the unpaid balance, whichever is more, into your monthly debt.
@Nick Montelli The ratio's allowed on a conventional - Fannie Mae or Freddie Mac are 50% of your gross income. So add up all the monthly payments of the types of items that would show on your credit report, that will give your existing debt ratio. You can go to 50% so anything below 50% leaves the rest of that room for the new housing payment including taxes and insurance. I hope that helps?
I would recommend you sit down with a small local banker and see what they can do.
There are lenders that will not consider the debt if the loan is less than $500k, however you will pay a higher interest rate possibly high 7's .
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