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What Mortgage Lenders Are Looking At

When you apply for a mortgage, lenders don’t just look at how much you owe, your income is also a large factor. A couple’s and individual’s debt, including the new house payment, should not be more than 35% of the gross income.

Also, what is very important is the money you put down on the home. The more you put down the lender feels the less risk he takes on and the more likely you are to get the mortgage. Especially in today’s market, lenders are looking for very clean borrowers.

Next, lenders look at your credit score and the debt that is owed. Lenders divide debt into two categories; installment loans and revolving loans. Student loans, mortgages and car loans, which require you to pay a fixed amount each month, are considered on the installment side.

Your student loans do have an effect, but not necessarily negative. When credit scores are calculated, student loan debt is viewed more favorably than credit card debt. Owing a lot of money in installment debt is not going to hurt your credit score as much as maxing out your credit cards.

Many young adults often get themselves into trouble by blowing off their student loans. In 2006 the default rate of federally sponsored loans was more than 12%. That might not
Seem like much, but when you realize that even in the current mortgage “crisis” only 5.1% of mortgage payments were late in the second quarter of this year.

New graduates usually build their credit history based on credit cards and student loans. That is why it is so important to make all of your payments on time. Before you take on a mortgage, eliminate as many other financial commitments as you can. Pay down or even pay off car loans and any other debts possible.

When Your Student Loans Do Hurt Your Chance Of Getting A Mortgage

Not paying your student loans will adversely affect your lives and credit for many years. You have entered into a contract with a company and if you do not fulfill your part of the contract the financial nightmare can follow you for a long time.

Students have been given several options to aid them when they need help in the repayment process. We’ll start from the top and move on down. First is the standard repayment, which is the normal schedule on a monthly payment basis.

Next is the extended repayment program, which stretches the payments to 25 years. This however, increases the total amount of interest over the life of the loan.

The graduated repayment program is designed for borrowers who anticipate making increasing financial progress over time. It begins with interest-only payments up to four years then payments gradually increase. This also increases the total amount of interest the borrower pays over the life of the loan.

Income-Sensitive repayment program is for borrowers who do not earn enough to cover their loan payment. An arrangement is made for payment between 4% and 25% for the gross monthly income up to five years and once again the interest increases over the life of the loan.

The last and I believe is the smartest and most popular program is the consolidation repayment option. It allows borrowers to combine multiple loans into one, extend the repayment term, and, in some cases, lower the monthly payment.

There are ways to help you out when you are in trouble with repaying your student loan, however, these do not help you when it comes to applying for a mortgage.

There Are Two Ways Of Thinking Here.

More than anything else, you need to organize your spending habits. Study the terms of your loans, and budget your income and expenses. Getting a good handle on this process will pay off tremendously in letting you worry about the bigger things.

The higher your student loan balance, probably the greater the urge you are going to feel to unshackle yourself and breathe a little freer. Then you must decide if you should just pay off your student loans as quickly as you can.

Some students decide to take the smallest loan and double the payments and pay it off first. Now remember, this loan has the lowest interest rate. Thus, moving on to the second lowest loan and then moving on to the third debt making those payments and also the interest payments.

Now this is called using the traditional debt-snowball method and focusing on paying off the smallest debt first while making minimum payments on the rest.

The second way is called the highest-interest method by focusing on paying off the highest interest debt first while making minimum payments on the smaller loans next.

Here the extra payments would be made each month and applied to the highest interest debt and would have this debt paid off first.

The second debt would receive the payments from the first loan and thus be paid off very fast. Therefore, when the third loan appears there would be money available from the two previous loans to pay it off quickly. And by doing it this way the higher interest has been paid off first, the second next, and so on. Thus, this system would save you the most.

Other Options To Tackle Before Paying Off Student Loans.

If you have credit cards and other high interest debt you then should try to eliminate them before you decide to tackle your student loan debt. Once these higher interest loans are gone, you can then concentrate on your student loans. Also, what can be a good decision is to pay off your car before you accelerate your student loan payoff.

Any loans that you presently have with higher interest rates than your student loans should be considered to be paid off first. Then take that money and apply to the next loan that you have with the following highest interest rate.

Student loans are a necessity for most students, but like any loan, they should only be

used as a last resort. When it comes time to pay them back, you should concentrate on other high interest debt first. The interest rates are usually low, so they are not as important as other debt.

Try To Minimize Student Loans.

The other thought that should be mentioned here is if you have more than one loan, you may consider consolidating them. This could allow you to increase the term of the loan and thereby lower your monthly payments.

Student loans in the end are more of an annoyance than anything else. At first, they really make money tight and they impact ones lifestyle. However, after a couple of years, they just become an annoyance.

With a little determination and planning you can pay them off way ahead of schedule. It just takes discipline and patience. And remember the less you borrow the less you will have hanging over your head, along with the interest rate during the length of the loan.

Many people face the challenge of student loan debt and don’t know how to pay it off when emergencies come up. Emergencies happen all the time and you will have to put off payments now to pay more later. This can be a hassle, but often necessary for struggling graduates trying to get ahead in Corporate America or trying to build a business.

Consolidation

Consolidation is the most common action taken by majority of college students out there attempting to pay off student loans. This can be a great option when you have numerous loans and you are paying $300 a month on each loan. Obviously that is nearly a grand a month that you are paying. On top of that it is annoying to be making that many payments, especially when you have other payments with utilities, rent, car payments, mortgages, the list can go on and on.

This option is recommended only once because if you have to attend further school after your undergraduate then this is going to be a challenge to get another subsidized loan. Companies don’t like it when you consolidate the loan and transfer your payments to someone else. If a company sees you do this once then there is a good chance you would do this again with them.

Forbearance

This option gives you three months of no payments. This is often done with many graduates when they can use that money initially for a down payment on a house or car, a rent deposit, or a medical situation that comes up. This is important for you to do when you have a situational circumstance. Often lenders will be fine with this even though they don’t have to do this for you.

Deferment

This is the most difficult way to delay payments. I suggest that you use this only if you have some good reasons like loosing a job, serious medical problems that will require a lot of medical attention and bills that come along with that, or some other long term issue that will require them to put of your payments. This could go for a while, but eventually you will have to be responsible for paying this loan back.

Also the interest could still be accruing during this time period if your loan isn’t subsidized by the government. So you could end up spending majority of your life paying off a student loan. That is something you want to avoid. With all of these options make sure that you make them as short as possible so you don’t have to worry about money.

Many of you face student loans from different lenders and with different payment plans. Whatever situation you may be in with student loan debt, all debtors have one thing in common. That one thing is that they need to pay the loan back.

To give you a bit of an idea what will happen if you don’t pay the loan back we can take a look at some of the steps toward credit hell. I give these to you so you can make sure you know when things are looking bad.

A Bill

First you start off with getting a bill in the mail. This is a simple reminder and the first area where you need to just pay it off. You should not go past this part really ever. If you need to set up a automatic debt repayment plan.

Delinquency Letters

This is the next annoying step that will haunt you. They will probably accompanied by phone calls to remind you that the whole process of paying that debt back wasn’t just some joke that your lender made up.

Final Notice/Default Claim

Eventually after five or six months you will receive a final notice and your bank will tell you to pay your loans back or they will file a claim against you for not making payments. This is where it just is getting ridiculous. Now they are going to contact a guaranty agency that will go after you hard until you pay back this loan or catch up on payments.

Often they will get so strict that they will want the whole money back now, but that will be hard when you are a struggling graduate with little income and thousands to pay back. You will have to contact them and beg for some forgiveness. I would come up with some very good excuses at this point.

Bye Bye Credit

Besides the government reaching out into your paychecks and taking a bite out of it, if you don’t pay back the guaranty company then you can expect them to contact the national credit bureaus and inform them of your lackluster payment history. If this happens then you can forget about a house, car, cell phone, furniture, and other areas where credit is looked at. Basically you better have a lot of cash or start looking to pay some serious dues for several years to get back in the good graces of the credit bureaus. Just don’t let it get to this and always stay in contact with your lender.

Repayment Options

Well we have established that it gets pretty ugly if you don’t pay your loans back in time. Now I know that many of you are in different financial situations so we are going to take a look at some methods to pay this loan back in a timely manner and more importantly save your credit score from crashing like stock market.

Standard Payments

The fastest way to pay off your student loan is through the standard payment. This will allow you to pay back the loan in about a decade. What is nice is that as your income increases you can always pay off more faster and fight off the interest and make a good hit at the principal amount. This will obviously save you more money and help you to get this past you a lot sooner.

Income-Based Payments

This is a payment form for people that are working in seasonal jobs like selling for a company during a summer or really doing sales of any kind. You are going to have great weeks and poor weeks. This is basically a scale based on your income to take out more when you make more. This can be good if your checks are not very consistent and you are concerned about paying off all of the other bills you may have.

Graduated Payments

This is a gradual increase for students that have to climb the corporate ladder to get ahead. This will happen with many of you where you will have to pay your dues and build a good history with a company to move into a position where you are making the salary you want to support your lifestyle. This would require probably 15-30 years to pay off depending on how quick you caught on with a company.

Long-Term Payments

This is for those of you that look to get a job that doesn’t pay well or maybe you just have a lot of bills as it. Basically it means that your income is not that much different each month from the money you send out. Use this as a last options because this could take a good 30 years to pay off and you shouldn’t really have to look at this as an option even though it has the lowest rates, you will have to pay a lot more down the road because of the time it takes to accumulate so much interest.

There are some ways that you could potentially cut down on your student loans even before you leave school which many students do not even take the time to consider while they are pounding the books for A’s. It might require you to be creative with your student loan and how you handle your payments.

Don’t Be A Lemming With Debt

According to a study given by the National Post-Secondary Financial study the results showed that nearly two-thirds of college students struggle to pay loans and they unfortunately graduate with a bachelor’s degree and student loan debt of some kind. For undergraduates with federal student loans the average debt is nearly $20,000 coming out of school.

That is a lot of money that could buy you a nice new car or maybe a down payment on a house. Even after you find a student loan opportunity and even if you take it be willing to look for other opportunities out there for loan consolidation. There are going to be times during your 4 years at school where a better deal may pop up and give you better rates and easier payments.

Study For The Right Debt

There are plenty of private and non-profit student loans out there that are willing to offer loan consolidation that could save your skin when it comes to a loan. Many federal student loans have to deal with increasing interest rates. That translates only to more money coming out of the student’s pocket and more payments long term.

The last thing you want to do is worry about more bills along with utilities, rent or a mortgage, car payments, saving for a family of your own, and countless other things that come up. I studied my bills yesterday and I was shocked to see all of the random payments that you don’t account for.

Student loan consolidation could help you make larger payments with fix rates and get closer to attacking the principle. Where many students it could take 20-30 years, you may be able to get it done in 10 years or maybe even shorter. Just think to yourself what type of relief that will give you when you don’t have to worry about a long term debt like that any more.

Where To Go To Consolidate

Consolidating student loans can be done through the Federal Family Education Loan Program also know as the FFEL, along with banks, secondary markets, credit unions, and plenty of other lenders will provide those same benefits. These are all worthy options for you to take a look at during your four years in school. I know that is difficult for many of you because the last thing that you want to do is more reading, but I promise you that it will save you a lot of money down the road and create more freedom long term.

You will actually find out that many federal education loans are capable of being consolidated whether they are subsidized or not. Some of these include Stafford Loans, Perkins Loans, and Federal Nursing Loans. Whatever loan you may have, make sure to check your commitments or covenants in the contract.