Friday, February 22, 2019

Borrowing Against the American Dream

Student Loan Debt & Its Effect on Mortgage Lending

Craig Garcia, President
Capital Partners Mortgage
Through the second quarter of last year, student loan debt lagged behind only mortgages as the largest consumer debt segment in the United States. And while mortgage debt has remained steady, with negligible growth over the last 10 years, student loan debt continues to skyrocket. 

That growth in outstanding student loan debt has ripple effects across the nation's economy, as younger generations see much of their spending power go to monthly payments on this debt. In turn, that keeps many from feeling like they can take the step of buying a house. Today's guest post comes from Craig Garcia, who gives a glimmer of hope, along with some advice, for anyone who still wants that piece of the American Dream that is homeownership.

I’d like to talk to you about student loans. A recent Federal Reserve study showed that student loan debt has become a major hurdle for younger generations looking to buy a home. Being in the mortgage lending business, and seeing what we see on a regular basis, I wholeheartedly agree. Most of you out there with student loans might say something like, “yes, we already knew that.”

What you might not understand is that one of the main obstacles actually stems from the mortgage loan industry itself. Loan programs are challenging. It’s why you shouldn’t just go and apply for a mortgage on your phone or without putting some thought into it. 

The four most common loan programs available to potential buyers all treat student loan debt and payments differently. That sets the stage for confusion. Let me break down some options available to those consumers with student loan debt, because our job is to help as many people as are able to successfully complete the home buying process!

1.     VA Loans – If your student loan payments could be deferred for up to a year after closing, then the VA will then be able to state that they won’t count any student loan payments against you when it comes to qualifying for a mortgage loan as a Veteran.
2.     Fannie Mae & Income-based Student Loan Repayment Plans – Your student loan lender has options to base your student loan payment on your income, temporarily offering you relief with lower, more manageable payment terms. The most aggressive loan program that will accept that lower payment when it comes to qualifying you for a loan is Fannie Mae’s conventional loan program. They will look at your new payment terms and accept those when determining your eligibility for a mortgage loan.

It’s important to remember that, in these circumstances, you will still need to be able to cover a mortgage payment and student loan payment eventually. Make sure you plan for those expenses and know that you will be able to successfully pay them.

It’s an unfortunate fact right now that student loan debt has become a large obstacle when it comes to purchasing a house, but it hasn’t made it impossible. If you feel that homeownership is the next step in your life, come talk to us at Capital Partners Mortgage today, and we can offer you advice and guidance as to how you can achieve this goal!

- Craig Garcia, President | Capital Partners Mortgage

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