Student Loan Debt Sucks!
No matter how you slice it, student loans suck. I am not saying that they don’t provide an excellent opportunity for many people but as a mortgage advisor I see it cripple people on almost a daily basis.
Student loans for the most part take decades to pay off and they cramp your lifestyle. I have seen student loans over $125,000 and that is more than houses cost in some parts of the country….. but let’s talk about how they affect ME and why I don’t like them.
Many people come to me and tell me that their student loan debt is deferred so we don’t have to count the debt – WRONG! You see, both common sense and your mortgage lender will tell you that this debt won’t pay itself and it will come out of deferment at some point in time and when that happens you have to make that payment. What we do is figure out what the payment would be with a formula or we use 1% of the balance as a worst case scenario. So if you owe $45,000 in student debt, the payment would be somewhere between $300 and $450 a month and we would have to contend with that when we qualify you. This may end up in you qualifying for less home than you had hoped.
The worst part about someone not being able to get into the home they want because of student debt is watching the interest rates rise and/or home values rise and then it gets even harder for these people to get into a home in the future. We don’t take into account that the debt is deferred and the person is going into a new job and they will likely advance and make more money by the time that the debt kicks in, this is one of those “one size fits all” deals.
BONUS PET PEEVE: I also hate it when people co-sign on car loans for friends or kids etc. This puts that debt on your credit report, period. This happens with parents on student loans as well and you need to be very careful about how you do this. There are student loans that the parent takes out solely by themselves and others where they are co-signers WITH the student. Being a co-signer is much preferred but you still need to take care to protect yourself.
If you are a parent and you co-signed for a student loan or car for your child, that debt is on your credit report and that payment is in your debt ratio. If they pay late it will hurt your credit. What you can do is make sure that the student pays the debt on their own with a bank account that does not have your name on it. This way you can prove that they are paying the debt on their own and we can remove that debt from your debt ratio and it won’t affect the amount of a home loan that you qualify for.
Be very careful about co-signing for anyone and make sure you look at all the repercussions of co-signing before agreeing to do so.
Need to know more? Please send me your real estate and mortgage related questions. I am happy to answer you. It may become the topic of a future article
Hans Bruhner (NMLS 243484) is a Mortgage Advisor for Pinnacle Capital Mortgage (NMLS 1071). Both are licensed by the Department of Business Oversight under the CRMLA. If you have a question, please contact Hans at (707) 347-9250 or firstname.lastname@example.org