Tips on buying a Boston condo for sale with student loan debt

The recent order by President Joe Biden canceling tens of millions of dollars in student loan debt is good news for the real estate industry, according to a new report.

While many millennials already own homes, student loans forgiveness could play a role in increasing rates of millennial homeownership.

According to a survey by Rocket Mortgage, 64.3% of millennials haven’t paid off their student loans. While these loans won’t necessarily prevent them from buying homes, they contribute to financial insecurity that can prevent millennials from taking the leap into homeownership.

The U.S. Census Bureau reports that when it comes to millennial borrowers, 56.8% own homes. However, 55.9% of those in this group are still making payments on their student loans. Given the fact that millennials took out a median of $40,000 to $60,000 to pay for school, that’s a significant financial barrier.

Homeownership has always been higher among student loan borrowers, likely due to higher education and income levels. Rocket Mortgage also reported that of millennial borrowers who own homes, nearly 50% bought their homes during the period after the Great Recession. Surplus housing, low interest rates and down-payment assistance plans allowed many millennial borrowers to purchase homes regardless of their student loan status.

This number has decreased significantly in recent years, thanks to the competitive housing market and the COVID-19 pandemic. However, 63% of home purchases between 2020 and 2022 were still made by millennials with outstanding student loans — indicating that the pause on student loan payments has given many millennials the opportunity to save for homes.

The question at hand is how eliminating student debt may influence millennial homebuying. Rocket Mortgage found that 19.2% of millennials who think they won’t buy a home simply don’t believe they can afford it.

While many millennials are still planning on buying homes regardless of whether their student loans are forgiven, nearly 70% of millennial borrowers believe they could achieve their dream of homeownership years sooner if student loan forgiveness becomes a reality.

Rocket Mortgage also found that the concept of student loan forgiveness doesn’t impact the amount millennials plan to spend on houses.

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Buying a Boston condo for sale with student loan might seem out of reach for many people. But the reality is, your student loan debt shouldn’t hold you back from buying a Boston Seaport condo. Before you decide to take the leap, sit down, review your priorities, and make sure you are ready to take on this responsibility. Are you confident about your income? Is it large enough to comfortably take on a mortgage payment on top of your student loan payments? What other area of your life will have to be scaled back? Here are five things you’ll need to do when buying a house with student loan debt.

Lower Your Student Loan Payments

Your student loans can give you a high debt-to-income ratio. Refinancing your student loans or switching to an income-driven payment plan will help lower your payments, decrease your DTI ratio, and prove to a lender that you have the funds to make mortgage payments.

Before making that decision, be aware of the trade-offs involved with both options. If you choose to refinance federal student loans, they then become private loans. You will lose federal protections, including access to income-driven plans and federal forgiveness programs. An income-drive plan will cap your payments at a percentage of your income. If you choose this route, the amount of interest paid will increase over time because the term length will be extended.

Generally, mortgage lenders won’t care if your overall student debt increases, their primary concern is your monthly payment. But to save the most on your student loans, you’ll want to minimize the amount of interest you pay over time.

Improve Your Credit Score

The biggest thing that lenders look for when deciding whether to approve you for a Boston Seaport condo loan is your credit score. Here are a few ways to boost your credit score ahead of applying for a mortgage:

PAY YOUR BILLS ON TIME

This is the most important factor in your credit score. If you pay on time and in full you can build a solid financial foundation.

DON’T CLOSE OLD ACCOUNTS

Closing a credit card account might seem like an easy fix when trying to build your credit score, but often that’s not the case. An old account in good standing can help your credit. The longer your credit history and average age of your accounts, the better.

USE DIFFERENT TYPES OF CREDIT

A mix of revolving credit (as credit cards) and installment loans (car payments or student loans) show you are capable of handling different types of credit.

MANAGE YOUR CREDIT UTILIZATION

The ratio of your credit balance to your total available credit is your credit utilization. Ideally, you want to manage your credit utilization so you aren’t using more than 30% of your available credit.

Save for Closing Costs and a Down Payment

Buying a Boston Seaport condo involves more than just taking on a mortgage – you’ll also be responsible for paying the down payment and closing costs upfront. Closing costs include home insurance premium, title fee, mortgage insurance, mortgage loan origination, and the home inspection. Overall, closing fees cost the average home-buyer about 2%- 5% of the total cost of the home’s price.

Traditionally, a down payment is about 20% of the cost of the home. But today, buyers have other options such as putting less down and paying for private mortgage insurance monthly until building 20% in equity. Just be aware, the less you put down the more you’ll pay in interest.

Consider Down Payment Assistance Programs

There are several down payment assistant programs that lenders will accept. Look into whether your state or city of residence may offer down payment assistance programs.  It’s also possible to take advantage of federal loan programs – even though you already have a student loan, you could qualify for an FHA loan. This could mean a down payment of as little as 3.5%. If you choose to buy your home in a more rural area, you could qualify for a USDA loan which does not require a down payment at all.

Research your options and talk to an experienced mortgage broker to find out what programs you may qualify for at the federal, state, and local levels.

Take Your Time and Choose a Home You Can Afford

Taking your time is the most important piece of advice that we can offer. When you make the decision to buy a home, it’s easy to get carried away. You might think you need to buy a house right away, with all the amenities and appliances you’ve ever dreamed of. But chances are, it’s not in your budget. Be aware that as a first-time home buyer, you’re likely buying a starter home which you will eventually grow out of.

Spend time analyzing what you’re looking for in a house, what are you needs and wants, what kind of neighbors would you like to have, and what can you realistically afford. When it comes to price, consider the 28/36 rule. 28 refers to the percentage of your gross monthly income that you should spend on your monthly housing costs. And 36 refers to the total debt payments you make – including your mortgage.