Can student loan debt affect my mortgage?

If you’re thinking about buying a home and have student loan debt — you might be worried you won’t get approved for a mortgage.

You might be surprised to know that student loans function similarly to other types of loans and credit card debt when it comes to your ability to get a mortgage. This means it’s possible you can buy a home despite your student loans.

Student loans & mortgage approval

When you apply for a loan, lenders look at your debt in terms of your income. They want to see that your debt-to-income ratio is below 30% and that you have an exceptional history of paying your bills. 

Essentially, they’re judging whether you’re a responsible borrower. So, your student loan only matters in terms of your monthly payment and how it stacks up among your other monthly debts. 

Debt-to-income ratio

A debt-to-income ratio is a metric used to assess whether or not you’re in a good position to take on more debt. 

Your mortgage broker will ask you for all your monthly debt payments and proof of income, then add a potential mortgage payment on top of that. The number that comes out will determine if your debt to income ratio is below 30% or not. 

Generally, you can do the same equation by looking at all your monthly payments and what a projected payment would be for the amount you’re willing to spend on a home. If all of that adds up to 30% or less, even with your student loans, you’re probably in a good position to get approved.

Credit Score

Another factor that mortgage companies take into account is your credit score. If you’ve been responsible with your credit and have paid all your bills on time, you’re likely to have a decent score. 

Most mortgage companies require borrowers to have a 690 or above to be approved. 

Your student loan shouldn’t be what holds you back from buying a house — especially if you’ve been responsible and careful about your debt. If you’re considering buying a home but are concerned about approval, you should talk to a financial advisor or begin conversations with a mortgage broker. They’ll be able to give you a better sense of where you stand.

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