If you have your sights set on making the big step towards homeownership, but feel it’s impossible with the burden of student loan or other debt – don’t despair! It may take a bit of creativity and research on your part, but there are few ways to bring you a little closer to your dreams of owning a home.
But first, a dose of reality: “Student loans by themselves cannot prevent you from getting a mortgage,” explains studentloanhero.com. “The effect of the student loans on your debt-to-income ratio is the key deciding factor”. Of course, there are other important factors in determining your acceptance for a home loan. How high is your income? How long have you had your job? If you have high monthly student loan payments but no other debt, you have a decent income, and you’re looking for a reasonably-priced home, you will most likely be fine when you apply for a home loan.
Now, here are ways to save for your home:
• Start small. Put yourself on a path to homeownership by establishing good saving habits. One mistake that people make is to create saving goals that are too ambitious or unrealistic. “Start small and commit to an amount like $10 per paycheck,” advises Eli Ristine from Pan Florida Realty. “When you can do $20, do it. Remain consistent by saving in realistic proportion to your circumstances.”
• Crowdfunding a down payment. The first thing to note is that most crowdfunding sites so not allow personal fundraising – so cross Kickstarter and the like right off your list. Sites like GoFundMe are best suited for hard-luck appeals like medical expenses for life-threatening diseases, so you may not get a lot of help there when trying to raise money for a mortgage down payment. But it’s not “forbidden” – so why not try?
FeatherTheNest.com might be an option to consider. “It lets you build an online profile for a gift registry where contributions to your down payment can be funneled into a linked bank account,” explains nerdwallet.com. The service seems particularly suited for engaged couples and newlyweds. One caution: you need to factor in the transaction fees, which can total up to 8% on each donation.
• Tap into retirement savings. First-time homebuyers can withdraw up to $10,000 from an IRA without penalty to purchase a home. If you’re married, that could mean applying as much as $20,000 to your down payment, because both spouses can draw $10,000 from their respective IRAs. Of course, you’ll have to pay the income tax due on the withdrawal, unless you have Roth IRAs.
• Get help from family members. Garrett Clayton, CEO of AmCap Mortgage in Houston, cautions that receiving a gift toward a down payment takes a “full circle” of documentation to satisfy a mortgage lender’s requirements. The donors will have to verify in writing not only that they made the gift but that they have the financial ability to make such a donation. That will require them to provide bank statements as proof, along with a letter confirming that the donation is a gift and not a loan. FHA Loans, however, do allow donations from family members and friends. [INSERT LINK (Read: ‘Take Advantage of First Time Homebuyer Programs)].
• State and local down payment assistance. State and local assistance programs are sources of down payment help that may not be well-known. Rob Chrane, CEO of Atlanta-based DownPaymentResource.com, says the service has identified close to 2,500 initiatives across the nation. There are programs in every state, implemented by government agencies, nonprofits, foundations and even employers. Assistance can have a geographic focus as wide as the nation or as narrow as a city — all the way to hyper-local initiatives targeted as tightly as neighborhoods, and even house by house. “There’s typically some maximum household income limit,” Chrane adds. That can vary by location, as well as the number of members in a household, he says. Even statewide programs will have income requirements that are often higher in metropolitan areas and lower in rural areas.
• Or…wait a bit longer. “Spending a few more years getting your student loans or other debts paid down could mean that you would qualify for a lower interest rate or a higher loan amount,” according to studentloanhero.com. Once you have a better credit history and more secure income history, you will have more options available when you finally are ready to take that leap into homeownership.
Sources: downpaymentresource.com; bankrate.com; featherthenest.com; studentloanhero.com; nerwallet.com
But first, a dose of reality: “Student loans by themselves cannot prevent you from getting a mortgage,” explains studentloanhero.com. “The effect of the student loans on your debt-to-income ratio is the key deciding factor”. Of course, there are other important factors in determining your acceptance for a home loan. How high is your income? How long have you had your job? If you have high monthly student loan payments but no other debt, you have a decent income, and you’re looking for a reasonably-priced home, you will most likely be fine when you apply for a home loan.
Now, here are ways to save for your home:
• Start small. Put yourself on a path to homeownership by establishing good saving habits. One mistake that people make is to create saving goals that are too ambitious or unrealistic. “Start small and commit to an amount like $10 per paycheck,” advises Eli Ristine from Pan Florida Realty. “When you can do $20, do it. Remain consistent by saving in realistic proportion to your circumstances.”
• Crowdfunding a down payment. The first thing to note is that most crowdfunding sites so not allow personal fundraising – so cross Kickstarter and the like right off your list. Sites like GoFundMe are best suited for hard-luck appeals like medical expenses for life-threatening diseases, so you may not get a lot of help there when trying to raise money for a mortgage down payment. But it’s not “forbidden” – so why not try?
FeatherTheNest.com might be an option to consider. “It lets you build an online profile for a gift registry where contributions to your down payment can be funneled into a linked bank account,” explains nerdwallet.com. The service seems particularly suited for engaged couples and newlyweds. One caution: you need to factor in the transaction fees, which can total up to 8% on each donation.
• Tap into retirement savings. First-time homebuyers can withdraw up to $10,000 from an IRA without penalty to purchase a home. If you’re married, that could mean applying as much as $20,000 to your down payment, because both spouses can draw $10,000 from their respective IRAs. Of course, you’ll have to pay the income tax due on the withdrawal, unless you have Roth IRAs.
• Get help from family members. Garrett Clayton, CEO of AmCap Mortgage in Houston, cautions that receiving a gift toward a down payment takes a “full circle” of documentation to satisfy a mortgage lender’s requirements. The donors will have to verify in writing not only that they made the gift but that they have the financial ability to make such a donation. That will require them to provide bank statements as proof, along with a letter confirming that the donation is a gift and not a loan. FHA Loans, however, do allow donations from family members and friends. [INSERT LINK (Read: ‘Take Advantage of First Time Homebuyer Programs)].
• State and local down payment assistance. State and local assistance programs are sources of down payment help that may not be well-known. Rob Chrane, CEO of Atlanta-based DownPaymentResource.com, says the service has identified close to 2,500 initiatives across the nation. There are programs in every state, implemented by government agencies, nonprofits, foundations and even employers. Assistance can have a geographic focus as wide as the nation or as narrow as a city — all the way to hyper-local initiatives targeted as tightly as neighborhoods, and even house by house. “There’s typically some maximum household income limit,” Chrane adds. That can vary by location, as well as the number of members in a household, he says. Even statewide programs will have income requirements that are often higher in metropolitan areas and lower in rural areas.
• Or…wait a bit longer. “Spending a few more years getting your student loans or other debts paid down could mean that you would qualify for a lower interest rate or a higher loan amount,” according to studentloanhero.com. Once you have a better credit history and more secure income history, you will have more options available when you finally are ready to take that leap into homeownership.
Sources: downpaymentresource.com; bankrate.com; featherthenest.com; studentloanhero.com; nerwallet.com
Down Payment Do's
