The high costs of undergraduate and higher education programs have resulted in more and more students borrowing money from both the federal government and private lenders to pay for school. Unfortunately, many college students and recent graduates don’t anticipate the effects of student loan debt on their future—specifically buying property. According to the National Association of Realtors (NAR), nearly 83% of non-homeowners and renters say student loan debt is the biggest obstacle to buying and owning a home.
While student loan debt can hinder your ability to save for a down payment on a property in Arizona, it doesn’t have to keep you from life’s significant milestones. The key is to learn the role debt plays in obtaining a mortgage, how to manage your debt, and what you have to do to achieve your goal of homeownership.
Qualifying for a Mortgage with Student Loan Debt in Arizona
Loans themselves are not inherently barriers to qualifying for a mortgage. When reviewing your mortgage application request, lenders look to see if you’re in debt and, if so, by how much. This is because struggling with debt can make it difficult to repay your mortgage, and lenders want to take all necessary steps to protect their investment.
The first figure lenders consider is your debt-to-income (DTI) ratio—a measure of all your total monthly debt obligations, such as car payments, credit card debt, and student loans, divided by your total gross monthly income. In other words, your DTI ratio weighs how much you owe every month against how much monthly income you bring home before tax and medical deductions.
The standard DTI ratio lenders want to see is 43% or less, according to the Consumer Financial Protection Bureau. However, many lenders prefer your DTI to be below 36%. If your DTI is above 43%, your lender views this as an indicator that you may be unable to meet your mortgage loan purchase agreement and payments.
Bad Credit Means Trouble for Mortgage Approval
The second item lenders analyze is your credit score, which is composed of your financial history, transactions, overall debt, and the number of credit accounts you have open. Essentially, lenders want to determine your creditworthiness before offering you a loan.
Credit scores are calculated using various different models, but the most commonly utilized report by lenders when assessing potential borrowers is your FICO Score. Excessive debt, missed or late payments, or defaulted student loans may all negatively impact your score and weigh heavily on your report for years.
How to Buy Property in Arizona with Student Loan Debt
Regardless of your DTI and credit history, it’s still possible to purchase a home in Arizona if you have student loan debt. You may increase your mortgage loan approval odds, qualify for lower interest rates, and broaden your options by:
- Settling your debt with the help of a reputable Arizona student loan debt lawyer
- Opting into a higher down payment
- Considering first-time homebuyer programs and resources
- Reducing discretionary spending (e.g., eating out or shopping)
- Earning extra income on the side
- Searching for employers that offer help with student loan repayment
Don’t Let Student Loan Debt Affect Your Property Endeavors
If you’re tired of being denied a mortgage, McCarthy Law PLC can facilitate a resolution with your private student loan lenders to reduce the interest and principal balance owed. When successful, you will only have to pay a fraction of what’s owed and the rest of your debt is forgiven. Our experienced debt settlement lawyers have helped thousands of people in Arizona resolve their outstanding debt, and we’re eager to help you too.
At McCarthy Law, we take the time to hear out each of our client’s needs and put forth our greatest efforts to ensure our clients understand their options. Despite your circumstances, we put our skills and experience to the test, enabling us to find the best solution for you. Find out more about our debt settlement program by calling (855) 976-5777 or filling out a contact form today to schedule a free debt consultation.