Purchase a New Chicago Home Despite Student Loan Debt with These Tips

February 28, 2015

student loan debtStudent loan debt has become a major inhibiting factor for many Millennials trying to purchase their first home. The Project on Student Loan Debt says that about seven in 10 college students who graduated from public or private nonprofit colleges in 2013 had an average of $28,400 in debt.

Even with this debt, more than one-third of Millennials are planning to purchase a new home in the next five years according to a study by LoanDepot. With so much debt, it can seem like an impossible feat for these young professionals. However, using the tips in a recent Equifax Finance Blog article, “Tips for Getting a Mortgage When You Have Student Loan Debt,” becoming a homeowner despite student loan debt can be a reality.

Prospective homeowners with student loan debt must first determine their debt to income (DTI) ratio. While this ratio may scare some people, the DTI ratio lenders use is actually only based on the monthly payments made to debt accounts. For example, the total amount of monthly student loan, car loan and credit card payments would be divided by total monthly income to determine a DTI ratio. Typically, lenders look for a DTI ratio of less than 43 percent.

Once home buyers have determined their DTI ratio, they can then determine how much they need to reduce their debt. According to the Equifax Finance Blog article, the primary step is to start early by paying off the lowest balances first. Another option is to consolidate consumer debt, such as credit cards, by transferring it all to a low- or no-APR account. Finally, working to reduce living expenses or finding ways to increase income can help as well.

For more ideas and tips on how to reduce student loan debt to help you become a new homeowner in Chicago, read the full article on the Equifax Finance Blog.

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