Fresh out of school and with hefty student debt in tow, it’s easy to just resign yourself to a lifetime of renting. At least for now. After all, with huge loan payments every month and a less-than-ideal job, that’s about all you can afford, right?
Luckily, you’re wrong.
Sure it might be a little easier to buy a home if you have tons in savings or your credit is perfect, but just because that’s not you doesn’t mean you’re out of options. In fact, Fannie Mae – one of the two major government-sponsored lenders in our country – actually wants to make buying a home easier for you. (Yes, you – student debts and all!)
Fannie Mae recently came out with new lending guidelines that give you a few options for 1) dealing with your student debt and 2) buying a home when you have that debt.
Here’s what their new guidelines mean for you:
As a student, you probably had very few options to build credit worthiness. And we all know most mortgage lenders are looking for top credit scores. Well, Fannie Mae can now look at your monthly loan payment and use that to prove you’re credit-worthy. In other words, that payment shows you’re responsible enough (and make enough money) to pay your bills every month – and that you’ll likely do the same with your mortgage.
If your parents have been covering your student loan bills for the past year, Fannie will assume those bills will continue being paid and will subsequently remove that debt from your profile. The same goes for credit card debt, car loans and other non-mortgage debts as well.
If you already own a home, Fannie will now let you refinance that loan, get cash for your equity and use that cash to pay off your student debts. Welcome to a clean slate.
Fannie Mae’s new guidelines are just the tip of the iceberg. While they certainly give you some options in dealing with debt and purchasing a home just out of school, there are a few other things you can do to help your chances as well.
The better your credit, the easier it is to get a mortgage. Start paying down your debts (and pay them on time each month), and resolve any outstanding or overdue accounts. If you don’t have much credit, consider getting a credit card, making a few purchases each month and paying it off well before the due date. Be sure to check your credit score through one of the three major reporting agencies before getting started: Experian, TransUnion, Equifax.
You don’t have to pay for the down payment all on your own. If your parents, grandparents, aunts, uncles or siblings want to help you out, they can give you what’s called a “gift.” All you need is a letter stating that the money was given to you (and that you’re not expected to pay it back) and your lender will consider it in your application.
In order to encourage growth, many cities, states and counties have programs that help young homebuyers with their down payments. Many rural areas offer DPAs, where population is low, and they’re becoming more available in larger, more expensive cities, too–largely to entice millennials and young buyers to the area.. Be sure to check with the city you’re considering buying in to see if they offer any programs of this sort; they can make a big difference.
Having another income on your application can greatly help, so if it’s possible, consider bringing in a co-borrower. It could, of course, be a significant other or spouse, but if you’re not at that place in your life just yet, it can also be a family member or friend. Just make sure it’s someone with a solid, steady stream of income who is financially responsible. You don’t want to be on the hook for the entire mortgage if they bail on you.
Savings aren’t only good for your down payment, but they also show lenders you have a little cushion should your employment or financial situation ever change. Try to add a little to your savings account every week. Even if it’s only a few dollars, it can add up over a few months and give your application that extra push it needs to get approved.
If you really want to buy a home, the tools are out there. It just takes a little forethought, some planning and, most importantly, the right lender, and homeownership is within reach for just about anyone – no matter how much student debt you’re dealing with.
Recent grad thinking to rent? Explore options to own instead. Our mortgage advisors can help.