January 2021 - Monument Home Loans

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Buying a house when you have student loan debt

Posted on January 19, 2021March 26, 2021 by Mann Mortgage

More than half of all college students have taken on some form of debt in order to pay for their education – mostly through student loans. The average outstanding amount owed? Between $20,000 and $24,999. If you’re among those that have student loan debt, what are your options for getting a home loan?

Do lenders look at debt?

When issuing credit, lenders biggest concern is whether a borrower will be able to pay the loan back. They use a lot of calculations to figure it out. One of the major ones is to divide the borrowers’ monthly debts by their monthly gross income. This is called a borrower’s debt-to-income ratio.

To get an idea of your debt-to-income ratio, consider the amount you pay each month for your minimum credit card payments, auto loan, rent, mortgage, student loan, and other monthly payments. Keep in mind that lenders will look at what you pay each month, not the total amount you owe. If you have $20,000 in student loan debt and make $200 monthly payments, your lender will use the $200 monthly payments in the calculation. Now, divide the amount you pay each month by your gross monthly income (before taxes and other deductions). This is your debt-to-income ratio.

Generally, lenders want to see, at a minimum, a ratio of 50% or less.

Pay down your student loans before getting a house?

Thinking about waiting to purchase a home until your student loan debts are paid down can feel like putting your life on hold. Whether you should pay off or down your student debt really depends on your unique financial situation. The price of a home ownership far exceeds just the monthly mortgage bill. There’s insurance, property taxes, utilities, maintenance, and plenty of small expenses. On the flip side, making a wise investment in a home could provide you with financial stability in the right real estate market.

Speak openly with your home loan officer to decide whether now is the right time for you to invest in a home. They’ll be able to give you expert advice about your real estate market, interest rates, and financial requirements for loans you may qualify for.

What home loans are available to people with student debt?

Many loan options are available to people regardless of the type of debt they have. Some favorites among young borrowers with student loans are conventional, USDA, VA, and FHA loans.

Conventional loans
If you have decent credit and can make a down payment of at least 3.5%, a conventional loan will offer you many great benefits including PMI fees that stop once you reach 22% equity in your home.

USDA loans
If you’re looking to purchase a primary home in an area defined as “rural” by the USDA, a USDA loan is a great choice. Chief among the benefits for those with student loan debt is a 0% minimum down payment and no private mortgage insurance fees.

VA loans
Another great 0% down payment option for those who are former or current members of the U.S. military. VA loans are available to fund the purchase of primary residences only.

FHA loans
If your credit has been diminished by student loan payments, consider an FHA loan. They’re available to borrowers with FICO credit scores as low as 500. You’ll have to make a down payment of 3.5 to 10% depending on your credit score, but it may be a good option to start building financial stability with a home.

Should you buy a home now?
Depending on your financial goals, taking advantage of the low interest rates might be a great choice. Contact your local loan officer to help you make the decision about whether you’re ready for home ownership or if it would be more advantageous to wait.

Buying a home during a pandemic

Posted on January 8, 2021March 26, 2021 by Mann Mortgage

There’s no doubt that Covid-19 has impacted how Americans are buying and selling their homes. Social distancing rules, historically low interest rates, and more people working from home have all changed, but certainly not stopped, home sales.

What homebuying trends can we expect to continue through 2021?

Virtual home tours

Don’t assume you’ll be able to attend open houses or leisurely tour homes on the market. In order to limit exposure to COVID-19, many sellers allow just the realtor and buyer into the house – with masks and gloves on, of course. No children or extra family/friends are allowed. Last year when Zillow surveyed home sellers, 43% of them said they’re likely to try to sell their homes entirely online.

Faster internet connections and better technology have given real estate agents a new tool – virtual tours. In addition to posting better photos, sellers’ agents are offering 3D virtual tours as part of their home listing. If you’d still like to see the home for yourself, your real estate agent can schedule an online video meeting. That way, you can watch a live video, ask questions, and talk to your agent while they tour the home for you.

Low interest rates

Rates have dropped like they’re hot. They’re the lowest they’ve been in 50 years, and they’re projected to stay low. Mortgage interest rates are partly based on what the Federal Reserve sets for the federal funds rate. And Federal Reserve Chairman Jerome Powell told NPR in an interview in September 2020, “We think that the economy’s going to need low interest rates, which support economic activity, for an extended period. It will be measured in years.”

Low interest rates are a boon to home buyers. Last year, 30-year fixed mortgage interest decreased by 1.07%. On an average home loan of $250,000, that’s a savings of about $150 each month between the two rates. That means buyers can afford more expensive homes – and they’re going to need those rates to stay low to compete in this real estate market.

Sellers’ market with bidding wars

We’re generally in what’s considered a “seller’s market”. In many areas, more people are looking for houses than there are houses available. A sellers’ market means we can expect home prices will continue to rise, though experts predict it will happen at a slower pace than we saw in 2020.

To buy a home in a seller’s market, be prepared to have a better offer than your competition. More than 20% of homes in the U.S. market are selling above their asking price, according to a recent Zillow report. Most commonly, it’s happening among homes priced below $259,906. And Redfin reported more than half of all offers were involved in bidding wars from May through November 2020. That means multiple offers at the same time, often driving up the price above what it was listed for in hope of winning the home.

Fast-moving inventory

Homes were averaging five days less on the market in 2020 then they were just a year before. Zillow reports homes spent an average of just 25 days on the market before accepting an offer. In September, homes moved even faster – the average was under contract in just 16 days.

What does all this mean for home buyers? When you see a house that fits your needs, make an offer quickly and be prepared to find out others have made an offer as well. Competing for homes can be an emotional roller coaster. Your best bet for staying level-headed is to work with your loan officer to set your budget and be prepared to walk away from a home you can’t afford.

Month: January 2021