The impact of the student loan forgiveness on homebuyers could be significant, as qualification relies on several factors including Debt-to-Income ratio.
Debt-to-Income ratios are calculated using the borrower’s gross monthly income (before taxes, insurance, 401k, etc.) and monthly debt obligations as they appear on your credit report. Lenders do not factor in the total debt owed but the monthly payment.
Typically, this ratio cannot exceed 50%, no more than 50% of your gross monthly income can be allocated to debt service and the costs of home ownership, to include property taxes, insurance, and HOA dues.
The average student loan interest rate ranges from 4.99% – 7.54% with an average monthly payment of $115 per $10,000 in debt. The current plan allows for $10,000 in forgiveness for those who qualify and $20,000 for eligible applicants who also received a Pell Grant.
The impact of forgiveness will vary based on each borrower’s individual profile. However, a reduction of $115 – $230 of monthly debt obligations will benefit all borrowers and allow them to qualify for a larger mortgage.