As a Michigan State graduate, do you have lots of student loan debt? Are you looking in East Lansing Michigan for affordable housing? Getting pre-approved for a loan can pose as difficult if you have a large amounts of student debt from college, or graduate school. However, as of this year, the rules have changed for mortgage lenders!
In the past, when a millennial or young home buyer like yourself applied for a loan, the outstanding loan balance was used against you. In other words, here’s an example: Let’s say you have $80,000 of student debt. You want to get pre-approved for a house loan through LakeTrust Credit Union, Dart Bank or MSUFCU. The bank would take 1% of that outstanding student loan balance ($80,000) and add it to your ‘income to debt’ ratio.
An income-to-debt-ratio is a formula used by all lenders and mortgage bankers when calculating how much money they will give you for a house loan. So in this scenario, the lender would assume 1% of $80,000 which is a monthly payment of $800 per month. That might sound unreasonable and very high, especially if that is not the actual amount that you currently pay on your student loans. But that does not matter if you are enrolled in the Income Based Repayment IBR plans.
Fortunately this year, there is good news, the guidelines are changing! How do lenders calculate student debt now? Instead of using that 1% of your outstanding student loan balance, they use what is currently on your credit report. So what is listed on your credit report? Your actual monthly payment, what you pay right now on your student loans.
So for example, if you have $80,000 debt but your actual monthly payment is only $100 per month than the bank or lender will only use this amount to calculate your income to debt ratio. Why is this good? A better income-debt-ratio can result in getting a higher mortgage loan which can result in purchasing a larger house for you, your kids, or your family.
Read more information on the article by the Detroit Free Press 2017 http://www.freep.com/story/money/personal-finance/susan-tompor/2017/04/29/college-debt-home-buyers/100970912/