Are you a Millennial (born between the early-1980s and early-2000s) who is thinking about buying a home? Do you have student loan debt and wonder if you even qualify for mortgage loan? You’re not alone.

Many Millennials are eager to buy a home but are dealing with significant student loan debt. The average student loan debt is more than $30,000 in some states. But studies say 30% of Millennials plan to buy a home within the next 5 years.

The problem is, your student loan debt can skew your monthly debt-to-income (DTI) ratio – the percentage of monthly income that you spend to pay debt, such as your mortgage, student loans, auto loans, minimum credit card payments, etc. For example, let’s say you and your spouse earn $4,000 a month and your total debt payments are $900. Your DTI ratio is 23% ($900 divided by $4,000). If you apply for a mortgage with a monthly payment of $1,000, your DTI ratio climbs to 48%. Your DTI ratio needs to be below 43% to qualify for most mortgages. Therefore, you likely won’t qualify for a home loan.

Additionally, it’s best to keep your DTI ratio below 36%, so you know you can pay all your monthly bills and get better loan terms. Therefore, to get your DTI ratio down before you apply for a mortgage, you need to take steps to reduce your debt.

• Start reducing debt a year or two before you plan to buy a home.
• Pay off low debt balances first.
• Consolidate your student loans to get a lower monthly payment.
• Keep your credit card balance at or below the 30% threshold of the maximum available credit.
• Reduce your living expenses. For example, take public transportation, eat out less and don’t buy expensive coffee drinks so often.
• Increase your income by getting a part-time job or doing freelance work.
• Save for a down payment. Most lenders want to see 20% of the home’s purchase price. Another option is to pay private mortgage insurance each month to reach 20% equity. Also, consider federal or private programs like FHA or VA which allow you to put down less money.
• Save for closing costs, such as lender fees, title insurance and a home inspection, too.
• Wait until after the six-month student loan grace period has passed before looking for a new home.
• Don’t take on new debt until after you’ve purchase your home.

With good planning and money management, you can make your dream of homeownership possible.

Once you’re ready to look for your new home, you should get pre-approved for a mortgage loan. Contact the mortgage specialists at Grandview Lending in Indianapolis. They will be happy to look over your employment history, credit scores, income and assets to determine your eligibility. They can also talk with you about the many federal and private programs with minimal down payment requirements that are geared toward first-time home buyers.

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