How to Buy a Home with Student Loan Debt

In the United States, there is currently about $1.5 trillion dollars’ worth of outstanding student loan debt. By comparison, that’s hundreds of billions of dollars more than outstanding credit card debt! Also, about 20% of those paying off student loans are paying off amounts greater than $100,000.00 and the average monthly student loan payment is $300.00. It’s hard to imagine that you can ever finish paying off this debt, and be able to start the life you imagined when you first decided to go to college. That hopeless feeling is common among anyone who graduated college in the last couple of decades, but not many realize that it’s possible to have this debt AND also buy your dream home. You don’t have to pay off your student loans before buying a house, but it does have a couple of extra factors. Let’s break it down for you

#1 Student Loan Status 

First you need to determine what status your student loans are in. Are they on an income based repayment plan,in forbearance, or currently in deferral? If they are, you should skip down to the 4th tip because you may have a different factor to deal with than if you’re on a standard payment plan. If you’re not sure, then read through all of the steps, and when you’re done, either check your student loans online or give a call to the company who is managing your loans to confirm your status.

#2 Debt to Income Ratio

Everyone who wants to buy a home has to conform with the concept of debt to income ratio. Essentially, that means that a lender will consider the monthly payments for all of the debt that you are responsible for, and then compare it to all of the income that you bring in each month. It then will create a percentage that they use to determine approvals and loan programs that you are eligible for (the number you want to stay around is 43%). Of course, having a monthly debt such as a student loan payment is going to drive that percentage up.

Another consideration is if you plan on having someone else on the loan with you. Something many people don’t realize is that you will have to include their figures for your combined debt to income ratio (yes, if they have debt, it is now considered as part of a combined percentage, which could have a negative effect). There are also benefits, because if they have good income and very little debt, that will help your overall combined debt to income ratio. Keep that in mind when looking into your mortgage options.

If after all of your efforts, you find that your debt to income ratio is still too high, you don’t have too many options left other than lowering your debt or making more money. If only making more money were easy, right? Some people think getting a second job will help, but if you have a part time job for less than 2 years, you may not be able to include that in your debt to income ratio. Your best bet would be working on getting overtime, bonuses, or asking for a pay increase, even if it is confirmed in a letter from your employer that it won’t be active now, but will be promised at a specified date. You can also consider the possibility of finding a better paying job, but also keep in mind that lenders will want to see you transition to a job that is in a similar line of work, and you want to avoid having an unemployment gap over 30 days. Pay structure is also important, so if you change jobs, you don’t want to switch from a 1099 to a W2 or vice versa. Stick with transitioning from a W2 to a W2 or a 1099 to a 1099.

The other option would be looking at ways to lower your debt. Your ratio will improve if you can eliminate some recurring debts entirely, and that’s always a worthwhile endeavor. Another focus might include reducing the amount of recurring debt you must spend. One way to do this with student loans is to consolidate and/or refinance them (be careful when refinancing student loans and make sure that you understand all repayment terms and what is best for your individual goals). There are many lenders out there willing to refinance even your federal student loans at a lower rate, and it would help lower the amount of your monthly payments if you consolidate to one payment each month.

#3 Know Your Credit Score

Particularly if student loan debt is a concern, you’re going to want to make sure that you have access to the best rates and programs available. In order to do that, you need a decent credit score. Check yours through annualcreditreport.com. If your average score is under 600, you’ll certainly want to do some work to improve your score before shopping for a mortgage.

#4  How to Deal with Forbearance, Income Based Repayment Plans or Deferrals

Is your student loan status one of the following: In Forbearance, on Income-Based Repayment Plans, or In Deferral? Up until recently, having student loans in one of these categories greatly limited the home loans available to would-be homeowners. Things have gotten much better. For some loan programs, lenders must count between 0.5 and 1% of your total outstanding loan balance if it falls under one of these categories. Because of the effect this can have on debt to income ratios, you may find yourself out of luck with some loan programs. This can be particularly troubling for those with student loan balances that are too high to be refinanced comfortably. Don’t worry! Conventional loan programs are much more likely to take only the amount you actually pay monthly into consideration.

There you have it. Having student loan debt does not and should not keep you from achieving the dream of home ownership!

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Is Now a Good Time to Buy a Home?

Over the last two years there’s been a lot of movement in the markets. Stocks went way up, but have more recently backslid. In terms of the American workforce, we’re told that most working-age people are gainfully employed and that businesses are now competing for the best talent. How does all this affect the housing market and what you can afford? Whether you have previous experience in buying a home or are just now considering it for the first time, it can be pretty confusing to tell whether now is a good time to buy a home or not. Let’s take a moment to step back and figure out where we are by briefly reviewing the modern history of mortgages in the United States.

The Early Mortgage

Did you know in the early 1900’s home buyers were typically expected to have a down payment of 50% of a home’s value when applying for mortgages? Beyond that, the typical period to pay off the remaining 50% or so of a mortgage was around 3 to 5 years! The system was far from perfect, and a lot of Americans were left with the dream of home ownership simply out of reach.But things got even worse during the Great Depression when most home mortgage loans stopped being offered altogether. Enter Franklin D. Roosevelt’s New Deal,which aimed at stimulating economic growth in the United States. One major creation of the New Deal was the Federal Housing Administration (FHA), which introduced 15 and 30 year mortgages that offered insurance to lenders who had become fearful of borrowers defaulting because of the Depression. In addition to creating a safer environment for lending, these new mortgages offered the middle class the opportunity to buy a home with lower down payments and more extended terms for repayment.

Booms and Busts

There was likely never a more prosperous time for the average American than in those years following the Second World War. Soldiers were returning home and it seemed that just about everyone could take part in the American dream of home ownership. For decades following, the country’s booming economy fed increasing appetites for more expensive housing.Eventually, the housing market could no longer meet so much demand. As a result,interest rates rose steadily through the 70’s and 80’s and soared to the 20%range. With fewer people to afford this level of interest, the market adjusted again to below the 10% level in the later 90’s. Part of this market adjustment was due to the rise of sub-prime and predatory lending, practices which aim to offer loans to borrowers who lack the ability to afford them. When the jig was up, and owing in part to the record-high number of mortgage defaults that would follow, the country entered a massive economic downturn that would come to be known as the Great Recession in 2007-2008. Following this period, the government responded by increasing regulations to crack down on sub-prime and predatory lending. The government also responded by lowering the cost of credit to historic lows, which allowed for lending institutions to offer mortgages at rates nearly as low as 3%!

Today

After so much government stimulus and with the economy continuing to show positive signs of growth, the government is currently responding by raising interest rates on credit. In turn, lenders are offering mortgages at slightly higher rates (today, the average mortgage rate is 4.5%).While it’s impossible to tell what the future holds, there are signs that the government won’t be raising the cost of credit as quickly in the future as it has been recently. This is because the economy and wage growth may not be improving quite as well as traditional indicators suggest. Giving some back bone to that theory, we are starting to see home prices once again drop due to being priced too high to sell. With interest rates still near historic lows and home prices starting to fall, I hope you now agree that now is a great time to buy a home.

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Crefco Dog Days of Christmas Instagram Contest Rules

Enter in a chance to win a $50 Amazon gift card!!! (Just in time for those holiday gifts)

How to enter:

1. Follow our Instagram profile @crefco 

2. Like the post on Instagram

3. Tag a friend in the comments

4. Then share a picture of your festive furry friend with the hashtag #CrefcoDogDaysofChristmas

Giveaway runs from Dec 13th – Midnight Dec 20th.Winner will be selected at random and will be announced on our page no later than 5PM(EST) on Monday Dec 21st

The gift card will be sent via email so a valid email address will be required.

Continental U.S. participants only! Must be 18 years and up to enter

 ***This giveaway is in no way sponsored or endorsed by Instagram or Amazon***

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How to Have a Frugal Holiday Season

The holiday season is an especially risky time for those of us that have goals that involve living a mindful, budgeted lifestyle. Even those of us that hold these goals so dearly most of the year can get sidetracked by the pressure of spending over the holidays. In the consumerist western culture, we’re made to believe that what we spend has something to do with our worth as a good family member or friend. This year, let’s remember the better side of the holidays: the opportunity to share and pass on traditions. Let me recommend that one of those traditions ought to involve practicing frugality. Through frugal practices, we can show wonderful examples of resourcefulness, appreciation, and that sort of be-your-own-person approach to doing things that the holidays can sometimes lack. Here are some ideas to get started on:

 

Start With Setting a Budget

 

If you have your own family, sit down with your partner and discuss what a reasonable budget is for holiday spending this year. Simply having this conversation is worthwhile because of the feelings of accountability that come along with it. But even if you’re only planning for your own budget, the key is to stick to it.  Other helpful budget-setting tools include setting a cap on how much you’ll spend per person or per gift.

 

Redefine the Holidays For Yourself and Your Children

 

Especially if your children are very young, you have an opportunity to make each holiday your very own. For tight budgets, you might employ a secret Santa style gift-giving arrangement where each family member gets only one other family member a gift. You might also consider giving a family gift to a worthwhile charity. Maybe your family spends an entire day each season on a movie-thon. Maybe you cook together or go for walks in the snow. The holidays are about togetherness and tradition, so put your stamp on them.

 

Create and Re-use Holiday Décor

 

You’ll get a double-whammy out of the low-cost fun of creating your own holiday décor while spending time with your loved ones. If you find yourself wanting to purchase something new, it can cost you big unless you find a super bargain. A great alternative is to find used items and repurpose them. You never know what you will find when you go to your local thrift stores. It’s possible you could find a beautiful antique, or you could use your creativity to refurbish something making this season cost effective, but also more sentimental if you put time into redefining an old item.

 

Mindful Gift-Giving

 

No matter what your budget may be this year, vow to be a little bit more thoughtful about how you give and how you ask for gifts. If you have children, have them write their wish list the old-fashioned way, with paper and pencil. The problem with online shopping is the unlimited items available with the click of a button, taking away the boundaries usually put up by local accessibility. Instead, have your children write to you about what they would like and why they would like it. Maybe even have them list it from most wanted to least. Encourage charitable habits and keeping tidy at the same time by asking your children to donate some of their older possessions to children who will go without new gifts this year. It’s worth saying; gift-giving does not need to be done cheaply to be done frugally. Buying someone something of quality that costs a bit more, but will last, is much better than feeling like you should buy them a new one next year to make up for it, and it’s a much more thoughtful gift in the long-run. As for receiving, the frugal move may just be to ask for the thing you really need or will buy later in the year anyways so that you can offset whatever costs you do have from holiday spending.

 

Good luck and Happy Holidays!

 

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