How to Get a Mortgage with Student Loan Debt
You put your all into your degree, and you've got the job, memories, and friends to show for it! After the hard work pays off, and you want to start adulting, you might crave buying a house quicker than you drank those shots in your second year...or shall we not talk about that?
If it's time to get accommodations that feel a little less like your student digs, but you wonder if you can get a mortgage with student loans, this is the post to pay attention to. No time for napping in this class!
Is it impossible to get a mortgage with student loans?
I'll give you the good news straight away. You can get a mortgage when you're still paying off your student loans. Times have changed, and the economy with it! What you should focus on is how your student loans affect the building blocks to purchasing a home. Your loans impact the amount you can borrow, your credit score (but you already knew that one), and who will lend to you.
How will student loans impact your mortgage chances?
Your mortgage affordability rate
When anyone applies for a mortgage, student loans or not, they have a mortgage affordability rate. This is calculated by combining two ratios: your gross debt service ratio and your total debt service ratio. I know this sounds as boring as third-year calc, but bear with me. The ratios look at your income, debt, and living costs to determine the house price you can afford.
The gross debt service ratio isn't affected by having student loans, but the total debt service ratio is. This ratio adds up all your prospective monthly housing payments, living costs, and your monthly debt loads—including student loans. If this total figure is more than 40% of your monthly gross income, then you'll have to aim lower with your house prices.
In this way, having a student loan will impact your mortgage chances if you're aiming high. Set your sights a little lower, or work on paying off your loan.
Your credit score
Credit scores are 100% a deciding factor when buying a home: the lower your score, the lower your chances. If you're a credit score teacher's pet, and you pay your debts off regularly, you don't accumulate much debt, and you have a range of evidence to show you're good with your pennies, then your credit score should reflect that.
Your student loans affect your credit score depending on how you pay them. If you've been avoiding payments as much as you avoided the professor who wanted to chat about your grades, then chances are your credit score is lower as a result.
Fortunately, detention comes in the simple form of making student loan payments regularly and consistently. Figure out how much of your monthly income you can dedicate to payments and make sure you pay it every month. Over time, this will improve your credit score and your likelihood of getting that mortgage.
What you can do to achieve a mortgage distinction!
Make regular student loan payments
If you dedicate some of your monthly payout to paying off your student loans, you'll increase your credit score and appear more trustworthy. This all contributes to getting approved. Plus, who doesn't want to hit that goal of being student loan-free?
Pay off other forms of debt
If you're paying off your student loans, but you've also got credit card debt or other loans, try to pay them off, especially if they're much lower than your student loan. This lowers your debt service ratio and improves your chances of getting a mortgage.
Apply for pre-approval
The best way to know if you're going to get a mortgage when you still have student loans is by applying for pre-approval. This way, you'll also know what you're entitled to borrow and what your interest rate will be.
It's time to graduate and head on out there into the mortgage world!
You now know that you can get a mortgage with a student loan. It's how you choose to pay your student loans that matters, and the ability to be aware of how they affect your budget. If you haven't already started regular student loan payments, take this as your sign to start now. Once you're ready, get pre-approved, so you'll have a real budget to play with and focus on making your loan payments as regular as possible. Okay, class of 2021, get in contact with the Green Mortgage Team and get house hunting!
-Kyle Green
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