How to Get Your Financial “House” in Order to Afford Your First HomeJune 22, 2017
Most of us enter adulthood with many goals and dreams. You may want a career that not only provides for a comfortable lifestyle, but also fulfills you personally. So naturally, you might seek an undergraduate or graduate degree that provides you with the education and skills to succeed in that career. Obtaining that college degree can help put you on the right path toward achieving your professional goals.
What about buying a home? You may be aware of the fact that you need a good credit score and a down payment to get started, but how do you get there? What is the path that leads to home ownership?
For many young adults, student loans play an important role in this equation. Even if you have a couple of degrees under your belt and you are earning a good income, saving to buy a house can seem out of reach when you are working to pay down student loan debt. In addition, you might be paying just the minimum each month, increasing your overall debt when you could be reducing it more quickly and getting closer to your goal of owning a home.
The good news is that there are ways to speed the process. As it turns out, there is a workable solution that could help you to get your finances in order and reduce monthly payments and perhaps overall student loan debt. With student loan refinancing, you can adjust your financial plan and head in the right direction, potentially reaching your goal of owning a home more quickly. Here is how you can benefit from this process.
The vast majority of students that rely on loans to pay tuition and other expenses during their time in college will find themselves holding a slew of loans after graduation. This means a lot of different payments and terms to contend with, which can be a real hassle.
With student loan consolidation, you may have the opportunity to combine all of your student loans into one, and this can deliver a variety of benefits, including:
- A single, lower interest rate
- Lower monthly payments
- Reduced overall debt
- An improved debt-to-income ratio
Most college students do not pay a lot of attention to the finer points of their student loans when they accept them – they are more interested in merely getting the money needed to attend school. Once you start paying loans, however, details like rates and terms become a lot more important.
Over the past several years, variable interest rate loans have not proven particularly worrisome, thanks to historically low rates. However, you may have noticed that the prime rate has recently been on the rise, and this may affect anyone with variable rate loans.
When you consolidate loans, you have the opportunity to lock in a fixed interest rate for all of your student loan debt, eliminating any variable rates that could prove problematic when the economy improves and interest rates follow suit.
Low Rates Locked In
With the economy in recovery mode following the Great Recession, interest rates have recently been on the rise. What does this mean for anyone interested in student loan consolidation?
It simply means that seeking student loan refinancing now may help you to lock in lower rates. If you are even thinking about refinancing as a way to get one step closer to purchasing a home, now is the time to talk to a professional, take advantage of your good credit score and get the lowest rates you can qualify for in the event they continue to rise.
Students who have been holding out for student loan forgiveness may be concerned about the current administrations proposed changes to or eliminating these benefits. By the time the new administration gets through health care reform, tax reform and whatever else is high on its agenda, you could have potentially made significant progress towards paying off your loans, especially if you were able to continue making payments after refinancing with a lower interest rate.
In other words, you’re on your own, and one of the best solutions to cut payments, reduce your debt-to-income ratio and improve your chances for a mortgage loan right now is with student loan consolidation and refinancing.
Don’t forget, mortgage interest rates are also going to follow the prime. If you are able to get in on a home purchase more quickly by reducing student loan payments now, you may also enjoy a lower rate on your mortgage loan, which could entail a huge savings over the course of a 30-year fixed loan.
One of the best things about student loan refinancing is that you have the potential to lower your monthly payments. If you are able to reduce interest rates for some or all of your student loans, you will naturally pay less every month, which leaves more money to put toward saving for a down payment on a home.
Of course, you might be wondering if this will end up costing you more in the long run, and this is a valid concern. Oftentimes, borrowers with high student loan debt accept a longer term for repayment in order to make their monthly payments more manageable, and this could result in additional interest accruing.
However, you don’t necessarily have to accept a longer term. If you reduce interest rates but choose a term for repayment that is roughly the same as what you had left on your initial student loan, you’ll still pay less each month and ALSO pay less over the life of your loan.
Student loan consolidation and refinancing is a win on every front for adults interested in finding ways to get their finances in order. When you want to buy a home and your student loan debt is standing in your way, student loan refinancing may help you reach your goal of home ownership more quickly.