How to Buy a House with High Student Loans

High student loans can wreak havoc with your debt ratios, so it is best to get preapproved for a mortgage to find out how much loan you can afford before searching for a home. Make an appointment with a mortgage broker. A brokerage has access to many different lending sources, whereas a bank will be restricted to just its own menu. The brokerage should offer FHA (Federal Housing Authority) lending, which is the most lenient with debt ratios. Walk through the brokers instructions to get your debt ratios in order, and get preapproved. You can buy any home in your price range when your financing is approved.

Common Pitfalls

Some borrowers tend to go at home buying in a backwards manner. They first find their dream home only to discover that they cannot afford it. Some people think that if they have good credit and scores, down payment funds and a good job history, they can buy the home. You must take debt ratios into consideration in this process. Too much debt with high monthly payments can make the added payment of a home financially dangerous, setting the borrower up for failure.

Where To Buy

Having your mortgage pre-approved in advance of shopping for a home allows you to the freedom of knowing your limitations, and you can shop for your home anywhere that suits your needs. Mortgage brokerages are located all over the United States. Go through your local phone directory and look under mortgages and mortgage services. Call them to discuss your needs and concerns prior to making an appointment to meet. They will tell you what documents are needed to get you started.

Cost

The cost to buy your home will depend on your income, debt ratios and credit. The cost to close an FHA loan will vary from state to state for tax and title costs. In an FHA loan, the seller is allowed to pay up to 6 percent of the loan amount for you for loan closing costs. The only increase in costs may be the up-front mortgage insurance premium. FHA is using a "risk based pricing" schedule for mortgage insurance. If your credit scores are low, you might see as much as 2.25 percent of the loan amount added to you balance (after down payment) and financed into your loan with FHA's minimum down payment requirement of just 3. 5 percent. The lender may require a slightly higher interest rate for low-scoring borrowers.

Comparison Shopping

A mortgage broker will give you a "good faith estimate" of costs to close your loan. You may wish to visit another brokerage to repeat the process of prequalifying for a loan and getting "good faith estimates." Understand that these are close but early estimates of costs, and an interest rate is not locked in until there is a property address and a purchase contract in place.

Insider Tips

To find your debt ratios, use the entire payment of principal, interest, taxes, insurance and mip (mortgage insurance premium) as quoted by your mortgage broker and divide by your gross monthly income. This represents the "front" housing ratio and it should not exceed 31 percent of your gross monthly income (FHA guidelines). Next, add the total house payment to all of your monthly consumer debt payments and divide by your gross monthly income. This represent the "back" total debt ratio and should not exceed 43 percent of your gross monthly income. These guidelines are not "carved in stone." They can be a bit higher with compensating factors such as good job stability, money in a savings account or even a good rental history. Try to consolidate student loans to reduce monthly payment, thereby reducing your debt ratios. Before attempting to buy a home, go to annualcreditreport.com and request your credit reports. When you receive these, check for errors, outdated accounts and duplications. Dispute these with the credit bureaus (customer service contact is shown on page one of each report). Doing this will increase your credit scores. Paying down credit card debt to under 40 percent of the maximum credit line will increase your credit scores. Always make monthly payments on time or early to keep scores from decreasing.