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Student Loans Versus Mortgages

 Oct 05, 2020

LaTasha Beal

According to the Brookings Institute, about 42 million Americans (one in eight) have a student loan, totaling about $1.5 trillion in student loan debt. Only 30 percent of Bachelor’s degree recipients graduating in 2011-2012 managed to escape without a student loan; another 30 percent accumulated $30,000 or more in student debt. All this adds up to a whole lot of potential borrowers who have to navigate the added complexities involved with buying a house with student debt.

What’s Your Student Loan Repayment Plan?

If you have student debt, you probably were initially given a standard repayment plan. Many students, however, found quickly that they weren’t able to pay those payments reliably and risked default. For 8.1 million borrowers, not quite 20 percent of all student loan holders, those standard repayment plans were traded in for income-driven repayment plans. Although income-driven repayment was meant to help students successfully keep their loans in good standing, they also can create complications for getting a traditional mortgage.

Calculated Student Loan Payments

For students in anything besides a standard repayment plan, it may be necessary for a lender to calculate an estimated loan payment as part of the debt to income calculation, rather than simply using the number from the student loan holder’s documents. This is where the rub really comes in.

For some loan programs, a $14 payment in an income based repayment plan is just that, $14 added to the calculation. However, in others, because the income-based repayment plans are only approved one year at a time, a calculated payment is substituted. This, in theory, sets up a worst case scenario for lenders when it comes to the risk of foreclosure due to housing affordability. For student borrowers, it can turn a long awaited home purchase into a huge disappointment.

Loan programs typically calculate the estimated payment in one of two ways:

• By simply using the amount equivalent to one percent of the outstanding loan balance (if you owe $30,000, your monthly payment is figured at $300), or
• Calculating how much of a payment it would actually take to pay your loan in full in the term that remains (if you owe $30,000 and your term remaining is five years, your calculated payment would pay that loan off in full at the end of the five years).

This also goes for loans that are in forbearance or deferment, so there’s really no way around it.

Student Loan Payments and Debt to Income Ratios

If you’ve never had a mortgage before, or you’ve only had limited exposure to the lending industry, it’s important to understand how debt to income ratios work. Lenders determine how willing they are to loan to someone not only based on their credit worthiness, but also on how much other debt they have. They want to see that borrowers have plenty of financial wiggle room for emergencies, since they really don’t want to get the house back.

For most loans, that means a debt to income ratio (DTI) under about 43 percent. Anything you’ve agreed to pay over a longer term, like your student loans, are added into this calculation and compared to your actual income. When your car loan, student loan, rent or current mortgage payment, and credit cards are all combined, does that or does that not exceed 43 percent of your income? This is the first and most basic question. Various loan programs will have ways to compensate for high DTIs, to a point, and there are different DTIs for different programs, though generally they’re in the same ballpark. So if your DTI is high, it’s not yet time to panic. However, you should be cautious about your next move.

This is why, if you have large student loans, it’s even more important to carefully consider the debt obligations you’re taking on as you take them. Student loans aren’t the only hurdle, but they are definitely a very large one for many students. Imagine having 10 percent or more of your income suddenly discounted because your deferred student loans are suddenly counted against you, even if you don’t have to make a payment! That’s the situation some borrowers find themselves in when they go to apply for a mortgage they believe they’re ready for.

All Isn’t Lost, Many Lenders Will Help

The good news is that lenders can help you sort your student loan woes out, even if it takes a little time to get you on the right path. Not only can they help you understand compensating factors that could help stretch your DTI a bit higher, they can also point to financial moves you can make to decrease your DTI, such as paying off those loans in their last legs or finding a co-borrower who can help even things out a bit.

If you don’t have a lender that you absolutely love, your HomeKeepr community can help! Just ask for a recommendation for a lender in your area who works with borrowers with student loan debt and you’ll be connected in almost no time to someone nearby!

Plant a Tree!

 Oct 01, 2020

LaTasha Beal

As fall approaches, a lot of people are looking for ways to prep their yards for both winter and the coming spring. One great way to do this is to plant trees on your property that will bloom and grow for years to come. If you aren’t sure whether the time is right to plant trees, or don’t know which trees you should plant, don’t worry; a wide variety of trees do well when planted this time of year. If you make sure that you plant them properly to give them a good start, most trees will be fine.

Why Plant in the Fall?

Not only will most trees do well when planted in the fall, but in many cases the fall may be a better time for planting than other times of the year. The weather tends to be milder during the fall, with less likelihood of drought or extreme highs that could damage your trees while they are still establishing their roots. Though cold weather will eventually set in, you’ll usually have enough time for roots to become well established before you have to worry about freezing temperatures or other problems from the cold. Add in a dormant period over the winter and you’ll have trees that are already established and ready to grow once spring arrives.

Which Trees to Plant

While there are some trees that might not handle a fall transplant, a lot of trees actually do very well when planted in the fall. More important than matching the trees to the time of year is making sure that you’re planting trees that grow well in your part of the country. Match trees to your planting zone, taking into consideration the cold-hardiness of the trees if you tend to see freezes in October or November. Check local nurseries or agricultural agents if you need help finding the right trees for your area.

Proper Planting Technique

When it comes time to plant, first stop to find out the specific needs of the tree you’re planting. In most cases you’ll have to dig a hole at least as deep as the tree’s root ball, but you may have to dig out three to five times its width to ensure that there’s enough loose soil around the tree for the roots to spread. Put the root ball in the center of the hole you dug, filling it in and tamping it gently, and then water it. If the ground settles during watering, leaving a divot around the tree, add more soil. You’ll also want to mulch over the area to help hold in moisture and keep the soil warm, but try not to crowd the mulch too close to the tree’s trunk. From there you’ll just need to water a few times per week depending on the tree’s specific watering needs.

Timing Your Fall Planting

Even though the fall is a good time to plant a lot of trees, you still need to make sure that you time your planting right, or you might end up with problems when winter moves in. Try to schedule your planting earlier in the fall rather than later; wait for summer’s heat to break, but choose a time that’s at least a few months before you start getting deep freezes. The air temperature should be cool but not cold, and soil temperatures should still be above 50 degrees Fahrenheit even if things are getting cool outside.

Prepping for Winter

Once your tree seems to be establishing roots and settling in to its new location, start thinking about how you’ll keep it protected that first winter. Most years will see the tree dropping its own roots and having grass or other ground coverings around as well. For the first year, though, the mulch you put down will be its main line of defense. Before the mercury drops too much, add some extra mulch above the roots to account for settling and to provide protection for the tree. You might also consider covering the tree with sheets or other coverings during early frosts to give it more time to get established during its first few months.

Need Some Help?

If this seems like a lot to take in, you’re not alone. HomeKeepr is here to help. Sign up for a free account today and we can help you find landscapers who can hook you up with the trees and other landscaping changes you want this fall.

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