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It’s every American’s dream to buy a house where he could establish his own family and nurture his own kids. But with the threat of student loan repayments to compensate your four-year degree, the cost may even boil down to saying goodbye to his hopes of a modest home. The ability to achieve things and attain decades-old aspirations could be buried to the pit of oblivion because of student loans.
According to a study done by a policy resource organization called Young Invincibles, the rising student debt levels affect the young college graduates’ ability to purchase a decent home. One of the primary measurements that determines an individual’s capability for a mortgage is the debt-to-income ratio (DTI). This is to ensure that prospective loan borrowers can actually afford their mortgage loans. If your debt is larger than your income, purchasing a house would be close to impossible.
Years ago, mortgage lenders were willing to offer provisions especially when student loans were involved. But because of the succeeding recent economic crises, most mortgage loan providers were forced to be stricter with their DTI requirements. Today, lenders generally calculate the back-end debt-to-income ratio to have a full vision of the borrower’s entire obligation and his ability to pay those debts.
Computing your debt-to-income ratio
It is typical to mortgage lenders typically to review two DTI calculations: the front-end and back-end debt ratios. The front-end considers the borrower’s projected PITI (mortgage principal, interest, tax and insurance) payments. Included in the calculation are expenses such as condominium dues and homeowner association assessments. Meanwhile, the back-end adds all other long-term debts to the front-end calculation.
To complete the calculation, you need the following groups of consumer finance factors:
  • Gross monthly income
      (Gross monthly income before taxes and insurance deductions)
  • Recurring debt
      (Federal or private student loans, personal loans, automobile loans, all installment loan obligations, and 5% of the total credit card balance as the projected monthly payment for the DTI calculation.)
  • Potential housing payments
      (Mortgage loan payments, mortgage insurance premiums, monthly portion of real estate taxes, monthly homeowner’s insurance premiums, and other existing assessments related to the housing.)
  • Although the Federal Housing Administration sets a cutting off eligibility for back-end or long-term DTI, conventional lenders sometimes provide additional flexibility to mortgage. Since there are other factors to consider to qualify for a mortgage, such as credit scores and down payments, you might still be lucky enough to make your American dream home come true.
    The rewards and setbacks of your marital status
    Young adults with outstanding student loans at varying income levels were split up according to marital status. Financial experts say that whether the borrower is single or married, this can also be influenced by student debt.
  • Single person with average debt
      – has limited capability in home purchasing
  • Two-debtor household
      – has possible struggles in buying a home
  • Household with one debtor
      – may have the ability to afford a house
  • Student loans can be greatly beneficial and may turn to be one’s stepping stone to success, if only you know how to play the cards.