Should You Buy a Home if You Still Have Student Loans?

What to consider before adding a mortgage to your educational debt

Becoming a homeowner is a hugeCHomeStudentDebt_Featured life step, especially on the financial front, and it should not be taken lightly.

And if you are one of the 43.3 million Americans still with student loan debt, according to the Federal Reserve Bank of New York, it’s an even bigger decision. There are many factors to take into account before taking the plunge and adding a mortgage to your educational debt.

Here are a few of the main points to consider:

Debt-to-income ratio – The biggest hurdle you may face if you try to buy a home while maintaining a balance on your student loans is what is known as the debt-to-income ratio. The DTI ratio is how lenders judge your likelihood of defaulting on a mortgage. It compares your total household monthly debt payments to your total income. Lenders generally prefer that number to be less than 43 percent, according to the Consumer Financial Protection Bureau.

As Real Estate Columnist Kenneth Harney of the Washington Post reported, new rules from the Federal Housing Administration (FHA) could make it tougher to qualify for a low-down-payment mortgage through the FHA, as well as restrict down payment gifts. Previously, student loan debt was not taken into account in the DTI ratio, but now lenders are required to include 2 percent of student loan debt when computing the number. Considering the average class of 2016 graduate has a student loan debt of $37,172 according to Student Loan Hero, that 2 percent could drastically change the chances of getting approved for the FHA loan.

FHA Spokesman Brian Sullivan explains why the new requirements, though tougher, make more sense.

“Deferred student debt is debt all the same and really must be counted when determining a borrower’s ability to sustain both student debt payments and a mortgage over the long haul,” he says. Sullivan also adds that the agency’s primary goal is to put first-time home buyers “on a path of sustainable homeownership rather than being placed into a financial situation they can no longer afford once their student debt deferment expires.”

Down payment woes – With down payments as low as 3.5 percent, according to an article on CNN Money, whether or not you qualify for the FHA loan will determine how much of your saved money will have to be used up front. This is important because higher down payments lower your monthly payments as well as your interest rate. At the same time, you can’t put all your savings toward the down payment because you have other home-buying needs such as closing costs, moving expenses, homeowners insurance and home furnishings.

Renting vs. buying – Some renters feel as though they are “throwing away money” by paying a landlord each month rather than investing that money in an asset all their own. However, rushing into buying a home for that reason alone is a mistake, especially if you still have student loan debt, as a mortgage would just add to your debt, possibly to the point that it cannot be surmounted.

Furthermore, you have to think about non-monetary aspects as well. For example, are you in a place in your life where you want to put down roots in one particular area?

“Low mortgage rates and high rents make buying an attractive option, but you should be ready to put some roots down,” says CNN Money. “If you’re planning to stay in a home for at least two years, buying is more financially advantageous than renting in 70 percent of housing markets, according to a recent report from Zillow.”

Homeowners’ responsibilities – Another aspect that differentiates buying a home from renting is the fact that with a home all the responsibilities are your own. You’ll likely need a lawn mower, and other landscaping tools. If the dishwasher breaks, you will have to contact a professional and pay for their services. You have to be ready, willing and able to take on those responsibilities — which all come with costs up front. Will you have the funds for that?

If you are set on buying a home despite your student loan debt, you do have some options to make it more manageable financially. Come talk to us today to find out if you can afford purchasing a home.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

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Do You Need Renters Insurance While in College?

Protect your belongings with renters insurance

If you are currently attending college, RentersInsurance_Featuredit can be a good idea to look into purchasing renters insurance, which protects a person’s belongings in the unfortunate event of theft, fire, vandalism or water damage.

So, for instance, if your laptop is stolen, you’re covered. If a pipe bursts and damages your furniture, you’re covered. If a window breaks during a rowdy party, you’re covered.

It sounds pretty good, right? The thing is, it seems that most college students don’t think to purchase renters insurance, one reason being they think that they’re already covered on their parents’ insurance.

“The college students always assume that their parents have this coverage,” says Mercury Insurance Regional Marketing Director David Suarez. “But that coverage changes the minute they move away, even while they are at school. If they are living off campus, they no longer have that coverage. This is something that college students have never had to think about before.”

So the age-old question: Is it worth it to purchase renters insurance? Experts say yes — especially for the inexpensive cost. In fact, renters insurance goes for about only $15-$30 a month, according to the National Association of Insurance Commissioners.

“All college students living off campus should have renters insurance,” says Brainy Chick Finance blog founder Kelly Fisher. “Say a party gets out of hand and damage is done, you do not want to be paying for that out of pocket. If there is a leak or pipe issue and your items are ruined, renters insurance would cover your belongings.”

One of the biggest reasons experts preach for renters insurance is that damage is unpredictable. For example, unless you know your roommate extremely well, which most college students don’t when they first attend school, this person can be unpredictable.

“Roommates can be a huge unexpected security risk,” says SafeWise.com’s Community Outreach Director Clair Jones. “Many college students have no control over the person they share a room or apartment with. It’s definitely a good investment to take out a renters insurance policy that covers their laptop and any other items necessary for their schooling so that they aren’t stuck taking out an unnecessary loan to replace them.”

In addition, Suarez notes, it’s even more important to look into renters insurance if you or your child are living in an off-campus residence, which is more unlikely to offer any protection than on-campus residency.

Many college students will wave off renters insurance with the logic that their belongings aren’t expensive enough to justify protecting. However, Suarez says, this type of thinking is wrong.

“It’s really a matter of their ability to replace items,” he says. “The coverage pays to replace items. Start with clothing and add in electronics of different types. You can easily get up to a few thousand dollars in replacement costs. College students can buy renters insurance at very affordable rates to make sure that they can replace these items if they need to.”

Another factor in renters insurance is liability coverage, which college students can pay to include. Liability coverage protects students if someone is hurt while in their residence or if the student accidentally injures another person. This kind of insurance coverage varies among different policies, so be sure to read the details on whichever plan you choose.

If you or your child needs renters insurance, contact us or stop by today to see how we can help.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Questions to Ask Before Leasing a Car

10 answers you need before signing for a lease

For some, leasing a vehicle isCarLease_070516 a better option than buying. Before deciding to go forward with a lease, consider looking into the following topics.

Before choosing a vehicle…

Lease specials:
According to Edmunds.com’s Director of Remarketing Joe Spina, automakers often offer highly discounted lease specials on slow-selling models in order to try to boost interest. When you walk into the dealership, make sure to ask the salesperson about any of these possible offers. However, the quote given will not always be the final price. See below for more information.

Once you have a specific vehicle in mind…
Fees:
The first thing you will want to ask after expressing interest in the lease specials is what the vehicle’s “drive-off” fee is. Drive-off fees are a combination of the down payment and additional fees. Of course, you want to pay as little as possible upfront; however, that means a higher monthly payment. Other fees include acquisition and disposition fees, which unfortunately cannot be negotiated, but the security deposit can be waived. No matter the fee, it never hurts to question the dealer.

Down payment:
Bankrate.com states that your down payment can consist of many things, and as mentioned above, some may be negotiable.

“It can be made up of payments [for such things as] the security deposit, title fees, capitalized cost reduction, monthly payments paid at signing and registration fees,” the website explains.

Interest rate:
Another negotiable aspect is what people in the industry call the “money factor.”

“The dealer converts the interest rate into a mysterious-looking decimal number. To convert the money factor back into an interest rate, multiply by 2,400. So if the money factor is 0.00125, multiply it by 2,400 to get 3 percent,” explains Senior Consumer Advice Editor of Edmunds.com Philip Reed.

Always ensure your money factor/interest rate is parallel to what you deserve for your corresponding credit score.

Residual value:
This is the amount the car will be worth at the end of the lease. You will want one that holds its value — that is, it has a high residual value. The figure is an estimate set by the leasing company, and you can always ask the dealer what it is.

Lease term:
Most terms are 24, 36, 48 or 60 months, but there are odd terms put out there designed to confuse you.

“A 39-month lease based on the 36-month residual value of the car will give you lower payments, but you’ll pay more overall,” offers Reed as an example. “And you might be driving for three months without a factory warranty, so a major breakdown could cost you big-time in repairs.”

Miles included:
The industry standard for a lease is 12,000 per year. So if you hear of a deal that sounds great but includes only 10,000 miles, it is obviously too good to be true.

Gap insurance:
You will definitely want to know this cost in the event of an accident — or any damage at all, including a mileage overage — before you return the lease vehicle.

“This insurance will pay the difference between what you owe on your leased vehicle and what it is worth if it is wrecked or stolen. You can get it with the lease or ask your insurance company,” Bankrate.com states.

Regarding the lease’s end…

Lease transfer:
Given today’s consumerism, flexibility is key, which is why car shoppers want to be able to change vehicles more often, even when under a lease contract. You may want to ask ahead of time if you will be able to transfer the lease to another person for the remainder of the term. Some dealers may not know the answer offhand, but leasing companies will, so it’s a good idea to ask beforehand so you know all of your options.

Open vs. closed-ended:
Most leases are closed-ended, meaning you return the car at the end of the lease, pay any costs due or buy the car at its residual value.

“If the car is not worth the residual value figure at that point, you’re not responsible as long as the car has normal wear and you haven’t exceeded the mileage limits,” Bankrate.com states.

Less common is the open-ended lease. If at the end of the term, the car is not worth the estimated residual value — as usually decided by an outside party assigned by the dealer — you pay the difference. This could lead to some unwanted hassles, but you should be fine as long as you read and agreed to all the fine print in your lease contract.

Once you obtain all the answers to these questions, you should be able to ascertain whether the deal will provide you with a better overall experience than buying a vehicle would.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.