Real Estate Agent · Uniontown, OH · Member since 2019 · 29 posts · 14 votes
I was recently told that I don't qualify for a conventional loan because of my debt to income ratio due to college loans. I don't have an astronomical amount of debt and no other debt besides my wife's car payment and our her college loans. I can get the money for the down payment of 20%, but I'm struggling on how to get the rest of the money when I am being denied for a loan. I know there are other more creative solutions, but I'm having a mental block and want to get things moving. Suggestions would be greatly appreciated, thanks!
@Aaron Port. The fastest way would be to buy a used car for a few grand and to sell your wife’s car. Or if your wife does not want to drive a crappy car, you could drive the new used car and have her drive your car. With the car loan being gone it will improve your debt to income ratio.
Otherwise I would find ways to cut money from your budget to pay down your debts.
If you can put your student loans into income driven repayment, that will bring your DTI down. On conventional loan, they take income driven payment in calculating DTI. But if you don't qualify and to FHA, they consider 1% of the loan balance into DTI calculation.
@Travis Watson the more properties you buy the worse your DTI becomes. Especially since most places say they can't factor in rental income for two years. Have you had issues with different lenders saying they can't refi or allow a purchase because too many home loans are under your name?
Are you on the income based repayment plan with the lowest monthly payment possible? You can always pay more than the minimum but it can help with DTI. I'm an attorney and used to litigate against student loan companies. These are the struggles that are preventing the next gen from buying homes.
How much student loan debt do you have, and at what interest rate? It's possibly a better investment (with far less risk and headache than RE) to pay that down/off first, then the DTI issue resolves itself.
I would not pay off any student debt early. There are some very progressive candidates running for the democratic presidential nomination. There is a small chance that student debt will be forgiven in the not too distant future. I have no idea where they (the politicians) think that money will come from (I have the same view on the last year's tax cuts - especially the corporate tax cuts) but I would continue to pay the minimum required on education debt.
Still the sentiment expressed is not wrong. Is the car loan rate such that the smart move is to pay off the car loan? In general, loans that are not government backed (so excluding conventional home loans and some education loans) make sense to payoff rather than attempt to achieve a better return via an investment.
Good luck
@Aaron Port I by no means am a experienced investor but I was dealing with the same issue you are I just simply worked more..I cut my bill's down as much as I could and found a way to get more income on paper, got a 2nd job, my girlfriend got a 2nd job, the bank will be happy to see more money on paper and you can use all the extra money to work on the debt that holding you back
Check with your loan provider if you can switch to a longer payback period. I'm on a 30 year plan, so the reported monthly payment is low, but then I pay extra to principal every month. From a DTI standpoint, all that matters should be the reported obligation. You could then continue paying the higher monthly payment.
@Aaron Port-this changed about two years ago. It doesn’t matter if you have income based payments or if you are in deferment....the debt counts to what your payments are supposed to be. There are special programs for people with high student loan debt like doctors and lawyers. Maybe check with a small town bank in house loan.
@Josue Vargas thanks for the encouragement! I’m definitely not giving up!
You do that and you will be fine. Lenders is the first thing, then a deal or a property you really like (or your wife or partner), then poooffff, gone, already taken or someone have a better offer, and then, you will feel really devastated. Remember, is part of our business. Dealing with lenders is nothing, same with other VENDORS. You just need to focus on your goals, an keep trying and learn from experience. Next time you post something here will be like.... FU idiot lender, etc... Just kidding, but you are learning, keep moving forward.
On the other hand, I have heard a lot of people saying sell your car, get a cheap one, etc. Do not listen to them. Do not change your life style if possible. Unless you have a car that pays $800/month for the next 6 years, do not do it. Banks and lenders are smart enough to figure out how much debt you have on your vehicles, and the risk of whatever... paying both car and mortgage? silly... debt on cars are for what? 5-7 yrs max? Mortgages are for 20-30 years. Probably is all about your credit score and the debt to income ratio and just recently graduated from collage without a stable job. Most of us started there, so don't panic. For most people REI is a long term deal. You can get rid of your morning coffee or your evening whiskey, and that saved you up to $30,000 within a 30 year span... But you will be missing one piece, that awesome coffee or the afternoon cigar or whatever for 30 years. Just live plenty and invest as well.