There are 3 ways to overcome a DTI difficulty: Reduce debt, increase income or decrease the target mortgage payment.
Reduce debt. Some lenders will remove an installment or closed-end loan, such as a car payment, from DTI if the loan will be paid off within 10 or fewer payments. Dacey says if a buyer pays off enough of a loan to reduce the balance to 10 or fewer payments, the DTI can benefit.
Reducing or paying off credit card debt can help, too, although the 10-month rule doesn't apply because a credit card is revolving or open-ended debt.
Another DTI improvement strategy is to pay off the student loans with a private loan, perhaps from a family member, at a lower interest rate or with a longer repayment term. The private loan must be disclosed to the lender.
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Moving debt around
Buyers who are married and don't live in a community property state might be able to reconfigure the income and liabilities to overcome a DTI hurdle.
"Let's say the husband stays home with the kids and (the couple) has a joint auto loan that is truly the dad's truck. I've seen people refinance out of their existing auto loan and put it into the (name of the) spouse who doesn't have the income," Dacey says.
The income-earning spouse then applies for a mortgage without the debt-burdened spouse.
Increase income. The general rule of thumb is that income must be documented for 2 years to be included in DTI. But Krichmar says a buyer's college history can make up almost all of that 2-year time frame, and a new job in the same field isn't necessarily a negative, especially if it comes with a higher salary.
"That income could be used to qualify as soon as you have 30 days of pay stubs," he says.
Different rules apply to commissions, bonuses, self-employment income and hobby businesses.
Decrease mortgage payment. It may seem counterintuitive, but buying a house instead of a condominium can improve a buyer's DTI because homeowners association dues are included in a condo payment but not a house payment.
"Somebody might qualify to buy a $150,000 house but not a $150,000 condo because the association fees might be a little bit too high," Dacey says.
Buying a home in an area with lower property taxes or paying an upfront fee to decrease the mortgage interest rate also could help. The upfront fee is known as discount points or a buy-down.
It's tough out there
If none of those solutions works for you, you're not alone.
Only 33% of 2015 homebuyers were first-time purchasers, according to a survey released by the National Association of Realtors. That was the lowest proportion since 1987, excluding 2014, when the proportion was also 33%.
What's more, 22% of millennial buyers said saving for a down payment was difficult and 54% of that group cited -- you guessed it -- student loans as a factor.
Real estate brokers are concerned about this issue, says Wendy English, sales manager at Century 21 Commonwealth in Medfield, Massachusetts.
"Setting aside for the down payment and closing costs is difficult because their money is going toward living expenses and paying student loan debt," English says. "They might want to buy, but they have that burden of the student loans."
12,563 rubber duckies
One way to understand the impact is to try the make-your-own-infographic function at the website of the Young Invincibles, an advocacy organization in Washington, D.C.
Plug in, say, $25,000 of student loan debt and you'll discover that's equivalent to about 60% of the average down payment to buy a home. It's also equal to about 2.4 years of average rent payments, 676 toaster ovens or 12,563 rubber duckies.
Some of those examples might seem silly, but they do illustrate that student loans are a significant factor for many young adults in their prime first-time homebuying years.
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