Do you want to have a broad knowledge of mortgage insurance for borrowers with student loans? Keep reading, we got you covered.
Even with student loans, you are eligible for mortgage insurance if you meet the requirements. Mortgage insurance lessens the risk to the lender making the loan to you, so you are eligible for the loan that you might not otherwise be able to get.
However, this can increase the cost of your loan if you are required to pay mortgage insurance. It will be included in the monthly payment that you make to your lender, your closing costs, or both.
READ MORE: Student loan guidelines for getting a mortgage
Can I Get a Mortgage Insurance With a Student Loan?
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Yes! You can get mortgage insurance with your student loan debt. It is like any kind of loan, your ability to qualify for the mortgage depends on your credit score and ability to repay.
Having this loan debt doesn’t affect your credit score. One of the key factors that lenders look for, and student loans will impact, is your debt-to-income (DTI) ratio. However, if you have high student loan debt it can raise your DTI ratio and make it harder to get a loan.
The Impact of Student Loans on DTI Ratio
Student loan debt is considered on your DTI ratio, formula mortgage lenders use to help to check your creditworthiness as a borrower.
Moreover, the ratio is calculated by dividing your debt payment by each month by your monthly gross income. As it yields the percentage value of lenders then examine and evaluate your ability to repay the mortgage.
Maybe you have a car loan and student loan payments, for instance, the mortgage lender will add those to your proposed mortgage payment and divide the total by your monthly gross income.
Generally, the result should be more than 43 percent, but some lenders look for a ratio, of 36 percent while others might accept up to 50 percent. Leslie Thayne says “Maximum DTI ratios are set at 43%, depending on whether it’s a government back or not”
However, those with higher incomes, low loan amounts, and low overall debt will have a low DTI ratio, and increase your odds of loan approval.
READ MORE: Insurance For Student Loans: Importance, Types, And Benefits Of Students Loan Insurance
Tips To Get a Mortgage When You Have a Student Loans
Remember your DTI ratio is an element in the underwriting process and there are often compensating factors like the credit score, that lenders use to determine your qualification for the loan.
If you have student loans and want to increase your chances of being approved for a mortgage, here are the tips:
- You have to switch to an income-driven repayment plan.
Thayne says “It can help lower the DTI ratio and increase your chances of being approved.” It will be nice to switch for at least a year before applying for a mortgage loan.
- Moreover, shop around and select a reputable lender that will help you get preapproved.
Donny says “An experienced loan officer will discuss your student loan situation with you and offer financing programs best structured to meet your budget goals.
- Also, consider having a co-borrower to the loan. “Additional income always helps with qualification,” says Juan Carlos Cruz, founder of Bridgewater Financial Group in Brooklyn, New York.
- However, you need to widen your options. Consider buying a low-rate or small home or possibly in a more affordable area.
- Be patient. Thayne says “Save up for a large payment, to reduce your debt and allow any negative information on your credit report to age, which can boost you for getting approved.”
Mortgage Insurance Options with Student Loans
Maybe you have student loans, there are diverse mortgage programs you might qualify for that includes:
1. Fannie Mae HomeReady Loan
This is a low-down payment option for low-income borrowers, with cancellable mortgage insurance.
2. Freddie Mac Home Possible Loan
This is similar to a low-down payment option for low-income borrowers with the flexibility to apply for sweet equity toward the down payment or closing costs.
3. Freddie Mac Home One Loan
However, another low-down payment option will be given by Freddie Mac specifically for first-time homebuyers.
4. FHA Loan
It is backed by the Federal Housing Administration and requires a down payment of just 3.5%.
5. VA Loan
For active duty and veterans, no down payment or mortgage insurance will be required.
6. USDA Loan
The borrowers call it “rural” areas, also check your eligibility through the USDA website.
Should You Pay Off Your Student Loan Before Buying a House?
While you can qualify for the mortgage when carrying student loans, there are some cases when paying off student debt first might be the better call. If your student loans have a high-interest rate, for instance, you will want to focus to have extra money to pay them off. Also, if you plan to buy a home in an expensive area, a low DTI ratio can help you to afford more houses.
READ MORE: What Mortgage Protection Insurance is All About.
Conclusion
Now you know the mortgage insurance options for borrowers with student loans, so don’t hesitate to apply those processes mentioned earlier.
