Boston, MA · Member since 2018 · 48 posts · 22 votes
Hi Everyone,
My name is Olivia, I’m a 24 year old college grad (Penn State ‘16) and like most of my classmates I have student loans ($45,000). I am trying to prepare myself to purchase a property for househacking in the next year or two (location TBD). However with my DTI ratio being unbalanced, I think get approved for a mortgage will be difficult. So my question is for those of you with student loans (or any other significant debt) how were you able to finance your property purchase? How did you prepare yourself?
Just some additional info about me: I work a full time and part time job, I have a 6 year credit history, I’ve never missed a payment and I have a good credit score.
Thanks!
Olivia
Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
8y
Is there a way you can lower your current living expenses and pay down a lot of the loan debt in the next year or two before buying a house? You mentioned having two jobs so perhaps that could be feasible for you.
Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
8y
great question ...student loans are tricky .....depending on the type of student loan you have and the loan program you might use - the loan underwriting may vary based on what payment is used for qualifying purposes .....if your payment you make on the loan is a fixed/ constant amount and if its a fully amortized amount for the loan and if this amount appears on your credit report - more than likley this is the amount that will be used in your qualifying ( debt/ income ) ratios ........if this isn't the case - the lenders may use 1% of the loan amt ( which could be higher that the actual payment you make ) ...............get in touch with a lender / loan officer ...get pre approved so you know how this is treated ..this process is free and should be relatively easy .....by doing this you will answer many of your own questions ...I hope this helps
Renter · Las Vegas, NV · Member since 2018 · 278 posts · 71 votes
8y
Olivia, congrats on getting below the 10% on credit cards, that will really help! Getting to $0 debt two months before you apply will help the DTI the most. It also might be wise to wait a few months while paying down debt to see if this global trade war hammering the stock market will spell the end of appreciating real estate in the USA in 2018.
It does not matter how much you are sending in on your student loan. It depends on which lender backer your bank/broker chooses because they all use different DTI rules.
For now as of late 2017 early 2018, Fannie Mae changed the rules for student loans calculating DTI with the payment shown on your credit reports. For you that sounds like $15.
FHA used to accept income driven payment plans with documentation but I'm pretty sure that they are now doing 1% as the payment for DTI in 2018.
If the mortgage broker or banker does not use the FM/FHA rules they may try to amortize the loan to calculate DTI which usually won't work with large student loan balances.
If you contact Fannie Mae they may be able to give you a list of the banks to approach and I believe most large banks offer FM products.
Renter · Las Vegas, NV · Member since 2018 · 278 posts · 71 votes
8y
The advanced option to boost DTI by making debt go away is to use a seasoned entity to move all your personal debt to business debt. For example, your credit cards and car loan could go to $0 while your LLC pays down a business loan that won't appear on your personal credit reports.
It's difficult and time-consuming, but can be beneficial if you plan to enter the commercial real estate lending arena in the future.
And in commercial you can add the target property's income for qualifying!
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Olivia Umoren you’ll want to pay off or sell that car and get one in cash, used. What type of car are you driving? Car debt is the worst type of debt to have after High interest credit card debt.
I have a friend who paid off 37k in debt in a year. He did this while living in an apartment and just having a normal job. It’s very doable. Bought himself a used car too in that same time period. Has zero debt now.
My personal preference is only have real estate debt and keep the interest rates under 6 percent. Anything over 6 percent or variable id pay off early.