Saving for a home while paying on student loans
Income-based student loan repayment plans might be your answer.
May 7, 2018 - Author: Terry Clark-Jones, Michigan State University Extension
Currently, many first time homebuyers are finding it challenging to purchase a home. One of the main barriers is student loan debt. When qualifying for a mortgage, lender will look at a potential borrower’s debt to income ratio. The debt to income ratio needs to be no more than 43 percent of your gross monthly income. Often this is where the amount owed on student loans will have a negative impact on a person’s ability to get a mortgage.
There may be a solution for you. The federal government has created some great options to help student loan borrowers to pay back their student loans affordably. If you are struggling financially or would like to purchase a home, the income driven repayment plans may be an option.
In an effort to ease the burden of student loan debt, the Department of Education established a revised income-driven repayment plan called Revised Pay as You Earn (REPAYE) Plan. This plan will enable student loan borrowers to pay no more than 10 percent of their monthly discretionary income. It is available for all Direct Federal Student Loans, regardless of when they were obtained. There is no hardship required to apply.
The REPAYE plan is just one option. To learn more all income-based repayment plans, visit the government student aid website.
As a potential first time homebuyer, if you apply and are eligible for an income based repayment plan, this may lower your student loan payments enough to affect you debt to income ratio when applying for a loan. Better yet, this option may provide you with additional cash to save towards a down payment and closing costs.