{"id":1825,"date":"2019-11-20T20:46:23","date_gmt":"2019-11-21T02:46:23","guid":{"rendered":"http:\/\/fitbuxarticles.fitbux.com\/?p=1825"},"modified":"2023-01-03T15:30:21","modified_gmt":"2023-01-03T21:30:21","slug":"student-loans-mortgages","status":"publish","type":"post","link":"https:\/\/www.fitbux.com\/articles\/student-loans-mortgages\/","title":{"rendered":"Student Loans and Mortgages: Should Refinancing Student Loans Come 1st?"},"content":{"rendered":"

Student loans and mortgages are top of mind for many new grads.\u00a0 One of the goals we most often hear on our free FitBUX Coaching<\/a> calls is the desire to purchase a home in the future. One question we get on a daily basis: Should refinancing student loans come first or should the mortgage?<\/strong><\/p>\n

This article addresses why that question arises, how to analyze it, and what we tend to recommend.\u00a0 If you are looking for more info on student loan refinancing, be sure to check out our Ultimate Student Loan Refinancing Guide.<\/a><\/strong><\/p>\n

Table of Contents<\/h2>\n
    \n
  1. Getting A Loan Affects Your Credit Worthiness<\/a><\/strong><\/li>\n
  2. Analyzing The Question That Really Matters<\/a><\/strong><\/li>\n
  3. How Your DTI Ratio Is Affected<\/a><\/strong><\/li>\n
  4. The Impact Of Marital Status<\/a><\/strong><\/li>\n
  5. The General Recommendation<\/a><\/strong><\/li>\n<\/ol>\n

    <\/a><\/p>\n

    Getting A Loan Affects Your Credit Worthiness<\/h2>\n

    We sometimes hear that it is \u201ccommon knowledge\u201d not do anything before buying a house.\u00a0 By anything I mean refinancing a student loan, consolidating credit card debt, getting an auto loan, etc\u2026\u00a0 People spread this information because it may impact your credit worthiness.\u00a0 Thus, it may make you less likely to be approved for a mortgage.<\/p>\n

    Your credit worthiness is affected because each time you apply for a loan or try to refinance an existing loan, it is reported on your credit report as a hard inquiry<\/a>. If you have too many hard inquiries in a short period of time, your credit score with drop.<\/p>\n

    While this may indeed happen, it is critical to look at your personal situation and understand 1) which route will save you the most money overall and 2) what is the likelihood of you not being able to secure a mortgage should you have a new hard inquiry on your credit report.
    \n    <\/a><\/p>\n

    Analyzing The Question(s) And What Really Matters<\/h2>\n

    First off, a single hard inquiry on your credit report will not do much harm to your credit score.\u00a0 If you have multiple hard inquiries, the effect will be muted over time.<\/p>\n

    As a general rule of thumb, if you\u2019re not considering buying a home in the next 2 years, then the answer is easy: Look into refinancing your student loans now!<\/p>\n

    If you are looking to buy a house within the next 24 months, however, you\u2019ll want to keep reading\u2026<\/p>\n

    Before making a decision, it\u2019s key to understand how each type of loan<\/a> (student loans and mortgage) is underwritten.\u00a0 That is which variables and metrics lenders are looking at before deciding whether to extend you an offer.<\/p>\n

    The two key components to qualify is your debt-to-income (DTI) ratio and FICO Score. We focus on the DTI ratio below.
    \n    <\/a><\/p>\n

    How Your DTI Ratio Is Affected<\/h2>\n

    Your DTI ratio is defined as the percentage of your gross monthly income used to repay the combined required payments<\/strong> on all <\/strong>your loans. For example, if the required payment on your student loan is $1,000 per month and you earn $5,000 per month gross, then your DTI ratio is 20%.\u00a0 Your DTI ratio affects student loans and mortgages.<\/p>\n

    Seven student loan companies FitBUX partners with will refinance your student loans<\/a> if your DTI ratio is below 30% (one of our partners will go up to 40%).<\/p>\n

    For a mortgage, however, you can have a DTI ratio up to 40-45% sometimes higher depending on various factors. Thus, you can have a higher DTI ratio and still get a mortgage.<\/p>\n

    For example, assume you\u2019re currently single, have a student loan payment of $1,000, and a monthly gross income of $5,000. Let\u2019s say you get a mortgage and your monthly payment is $1,500. Thus, your combined required monthly payment for your student loan and mortgage is $2,500.<\/p>\n

    Your DTI ratio is now 50% and you will not qualify to refinance your student loans.\u00a0 Thus, costing you money in the long run.<\/p>\n

    I discuss one trick to dropping your debt-to-income ratio<\/a> in this article.\u00a0 Using this trick with your student loans will help you qualify for a mortgage.
    \n    <\/a>\"FitBUX<\/p>\n

    The Impact Of Your Marital Status<\/h2>\n

    Often times we hear married couples say the above example does not apply to them because mortgage lenders consider dual gross incomes when making underwriting decisions.<\/p>\n

    For example, let\u2019s now say that you make $5,000 per month and your spouse makes $5,000 per month.\u00a0 For mortgage qualification your income is $10,000. Thus, using the DTI ratio for mortgages above, you can have up to $4,500 in monthly debt payments.<\/p>\n

    However, when it comes to student loans adding your spouse as a co-signor may not improve your chances of getting approved.\u00a0 Most lenders will only consider one (i.e. your) income. <\/strong>Thus, if you have a $1,000 student loan payment, $4,500 mortgage ($5,500 overall monthly debt payment) and your own gross income is $5,000, your new DTI ratio for the purposes of student loan refinancing is 110%!<\/p>\n

    This is important because most student loan lenders, 6 out of 7 that FitBUX partners with<\/a>, use this method to qualify married couples for student loan refinancing. Only one adds both incomes together\u00a0 to qualify you for the student loan refinance.
    \n    <\/a><\/p>\n

    The \u201cGeneral\u201d Recommendation<\/h2>\n

    Of course, everyone\u2019s situation is different and should be evaluated on an individual basis. However, it is easier to refinance your student loans before you take on a mortgage. Therefore, you should refinance your student loans prior to obtaining a mortgage.<\/p>\n

    This general recommendation may change based on your situation. I have listed a few of those situations below:<\/p>\n