There’s no denying that student loan debt is delaying homeownership for some young buyers. But does your particular debt scenario make you one of them? Don’t self-diagnose.Full Article
Buying a house when you’ve got student loan debt might seem impossible. Plenty of news reports make it sound that way. If you’ve given up on buying a home before you’re a grandparent because you think you’ll never save that 20 percent down payment and you’ll never qualify for a loan, keep reading. You might well be wrong.
We say that after talking with someone we figured should know: Kathy Cummings, senior vice president of homeownership solutions and education executive at Bank of America. She works nationwide with nonprofits like Framework on preparing people for homeownership. The light she shed on this seemingly dark situation left us feeling a lot more optimistic.
Don’t believe everything you read
“There’s a lot of misinformation out there,” says Cummings, especially on the Internet, which younger homebuyers are most likely to rely on.
“That’s where I get my news too,” she says. “I like my information right away. But when I read articles that have misinformation about what it takes to get a mortgage or what it takes to buy a home, it just frustrates me because I know that it’s not accurate. There are options out there.”
Myth No. 1: You need 20 percent down
“With FHA [Federal Housing Administration], you can have as little as three and a half percent down,” Cummings says. “And it doesn't have to be your money. So if you can qualify for a first-time homebuyer program, it’s not necessarily money you saved.”
Definitely do not limit your thinking to federal programs, Cummings says. Among those first-time homebuyer programs she’s talking about are local ones that you’ve probably never heard of. Many municipalities are working to generate affordable housing for first-time homebuyers. “I guess it’s one of the best-kept secrets,” she says. “A lot of cities have special programs for first-time homebuyers where you can get some closing cost assistance or down payment assistance.”
Her best advice: get yourself to a housing counseling agency. You can search for one at HUD.gov. If you go to one in your city, Cummings says, they will more than likely know about those “secret” down payment assistance programs. Your local housing authority is also worth a call.
Myth No. 2: It’s hard to qualify for a mortgage loan
Not necessarily true, even with student loan debt in the picture, says Cummings.
“To qualify, you can't have poor credit,” she says, “but you don’t necessarily have to have a super-high credit score either. I think people have in their minds, ‘I don’t have a spotless credit history, so I’m not going to qualify for a mortgage.’”
The most widely used credit score is FICO. It ranges from 300 to 850 and gets calculated based on the information in all three of the major credit bureaus' reports. Lenders actually aren’t looking for perfect credit scores, by the way—they’re almost impossible to achieve.
“When a lender evaluates you and your credit profile, they're going to look at you holistically, at everything,” Cummings says. “Everything” means not just your FICO score, but also your income, your earning potential based on your career, how you’ve managed your money in the past, and more. In other words, it’s very much case-by-case. Don’t paint yourself with a broad brush based on reports you’ve seen in the media.
Also on the credit front, you don’t necessarily have to have a traditional credit profile, Cummings says.
“If you don't have credit accounts, like maybe you haven’t had credit cards, they can look at things like how you’ve paid your rent in the past,” she says. “Usually when you do that, homebuyer education is required to make sure you’re set for successful, sustainable homeownership.”
More programs you probably haven’t heard of can make qualifying easier, Cummings says.
Take mortgage credit certificates. A mortgage credit certificate (MCC), issued by some state and local governments, allows you to claim a tax credit for part of the interest paid on your mortgage. It’s a tax credit, not a deduction, so lenders may count it as additional income, which of course will help you as a first-time homebuyer to qualify for loan.
“And then there are some companies that offer employer-assisted housing,” she says. “Hospitals, for instance. I just heard about a bond program in Jacksonville, Florida, at a large shopping plaza, for anyone who works within that complex, regardless of income. While I don’t know a lot of the details, that could mean low interest rates and good qualifying parameters.”
Those are just a few examples. So we repeat: get yourself in front of a housing counselor. Says Cummings, “If my daughter were to come to me and say, ‘I want to see about whether I could qualify for a mortgage,’ I would send her to a nonprofit housing counseling agency.”
Her daughter. If that doesn’t seal your next step for you, we don’t know what will! Again, you can start your search for a housing counselor at HUD.gov.
In our next post, our conversation with Cummings turns to your actual debt. Among other things, how much is too much?