How Student Loans Affect Getting a Mortgage When Buying a Home

One topic that has been highly discussed in the mortgage and real estate industry are student loans. If you’re trying to buy a home and have student loan debts, you’ve likely experienced a high level of scrutiny from mortgage lenders and have had to answer several questions.

Student loans are similar to other types of debts, such as a car loan or credit card debts, in the sense that they can dramatically impact the amount a lender is willing to allow a borrower to have.

There are many frequently asked questions about mortgages and it’s vital that if you have student loans, you ask a mortgage professional how they can impact your ability to qualify for a mortgage.

How Student Loans Impact Mortgage Lending

Student loans have been making it difficult for many buyers to get a mortgage to buy a home.

This is the case especially with many millennial home buyers. Significant student loan debts are having a huge impact on the ability to buy a home.

Certainly, a buyer must have solid employment history, a strong credit score, decent income, and some assets, but a lender is also going to review buyer’s debt to income ratios to make sure they are within the programs guidelines. The biggest impact that student loans are making on mortgage lending is that they must be included in a buyer’s monthly debts. The percentage or dollar amount of student loans that must be included in a buyer’s monthly debt does vary depending on the type of mortgage they are attempting to secure, which will be covered below.

Student Loan Repayment

There is no secret that student loan payments are important and not paying them on time can be a big reason why a mortgage is denied. Since many student loans are backed by government agencies, if you were to apply for a government backed mortgage and there were delinquencies, the chances of getting approved for a mortgage are slim to none.

There are several student loan repayment plans that can be taken advantage of and each one can have an impact on specific types of mortgages. Income driven repayment plans, income sensitive repayment plans, extended repayment plans, and graduated repayment plans are some of the most popular plans. It’s important that if you’re going to be buying a home and have student loan debt that you consult with a mortgage professional to see which plan would be best without jeopardizing your ability to purchase a home.

Tips For Getting A Mortgage To Buy A Home With Student Loans

Now that you’ve learned about the impact that student loans have on getting a mortgage to buy a home, don’t feel that the task is impossible. With the proper preparation and following the correct tips, you can get a mortgage to buy a home even with student loans.

  1. Prepare
  2. Pay Off Debts
  3. Reduce Living Expenses
  4. Avoid New Debts
  5. Improve Income

 

Final Thoughts

Getting a mortgage while having student loan debts can be tricky, as you can see from the above information. It’s important that if you’re buying a home and have student loans, that you understand how they impact the different types of mortgages. It’s always best to get a mortgage pre-approval before shopping for homes, especially if you have student loan debts because they can significantly impact mortgage qualifying.