How to Handle Student Loans, Other Debts Before Taking Out a Florida Home Loan
Don Taylor, CFA, is the personal finance guru at Bankrate.com. He knows a thing or two dozen about applying for Florida home loans. Recently, Dr. Don answered the inquiry of a potential buyer who wanted to know if he ought to pay off student loan debt before focusing on a mortgage.
This is a common concern. Individuals want to be assured of the best Florida mortgage loan possible - therefore, they wonder about how such outstanding debts will play a role in their loan applications. The doctor has the answer …
Paying off debts versus making a Florida home loan request
Taylor recommends concentrating your efforts on saving for the down payment on a home. The outstanding balance on student loans, for example, isn’t going to dramatically affect the size of a Florida home loan you can qualify for - and it’s much more important to have money for a down payment and closing costs.
Florida mortgage lenders consider your debt load in two different ways when they review your loan application. The first is called the front ratio, which is the percentage of monthly before-tax income that goes toward the house payment. Lenders typically don’t like it when the total mortgage payment (principal, interest, taxes and insurance) divided by gross monthly income exceeds 28 percent.
The second debt-load consideration is called the back ratio. It’s the sum of the house payment and all other monthly debt - credit cards, car payments, student loans, etc. - divided by before-tax income. Lenders typically require that a borrowers’ back-end ratio doesn’t exceed 36 percent of pretax monthly income.
A Florida mortgage loan option
A piggyback Florida home loan can get you into a house sooner than a conventional first mortgage. With a piggyback mortgage you take out a first mortgage at an 80 percent loan-to-value ratio and at the same time take out a second mortgage for whatever fraction of the home price you don’t have as a down payment.
This type of Florida home loan allows you to avoid paying private mortgage insurance, or PMI, on the first mortgage.
It’s a basic fact of life that millions upon millions of buyers are in debt at the time of their property purchase — the issue at stake is how you’ll deal with it. For some, a Florida home equity loan could be the answer.
