There are many factors that come into play when applying for a mortgage. You’ve made an investment in your education and now want to make an investment in your next home. Are you wondering what your options are? At Mint Mortgage, we strive to make homeownership achievable and affordable for all. Although student loans can affect your home-buying process, they don’t need to keep you from your dreams of being a homeowner.
Facts about Student Loan Debt:
A survey in 2019 stated that 61% of millennials don’t own a home yet and nearly a quarter of them say student loan debt is what’s holding them back.
The average student loan balance was $28,950.
Student loans by themselves cannot prevent you from getting a mortgage.
Student loans payments that exceed 15% of your income are considered high debt burden
How Mortgage Lenders consider Student Debt The most important thing to remember is student loans by themselves cannot prevent you from getting a mortgage. Lenders look at how much you pay each month towards those loans. We look at your monthly debt-to-income ratio. This ratio is determined by adding up your payments for things like credit cards, auto loan payments, your monthly student loan payment, and combine that with your future mortgage payment. Then we divide that number by your gross monthly income which is how much money you earn before taxes. Keep in mind that if you’ve deferred your student loan payments, we still have to count your future monthly student loan payments towards your DTI.
How Student Loans affect the Mortgage Process If you have high monthly student loan payments, but no other debt, and a decent income, and you’re looking for a reasonably-priced home, you’ll likely eligible to qualify and be approved for a mortgage loan. Lenders care less about the dollar amount of debt that you have and more about how that debt compares to your total income. You can still buy a home with student debt if you have a solid, reliable income and a handle on your payments. However, unreliable income or payments may make up a large amount of your total monthly budget, and you might have trouble finding a loan. Focus on paying down your loans before you buy a home if your DTI is more than 50%. Student loan debt affects whether you can buy a house
Student loan payment make saving for a down-payment more difficult and mortgage payments harder
Student loan debt may increase your debt-to-income ratio
Missing a student loan payment can lower your credit score
Four Tips to Help you Qualify for a Mortgage
If you have $10,000 or more in student loans, consolidate at a lower rate to lower your payments and use the savings to put towards a home downpayment
Set financial goals for yourself, which can help you focus on the big picture
Avoid credit card debt!! Have one or two major credit cards and pay them off each month.
Establish a record of paying your bills on time so you don’t damage your credit score
Frequently Asked Questions Should I lower my student loan balance before buying a home?
You can still buy a home with student debt if you have a solid, reliable income and a handle on your payments. However, unreliable income or payments may make up a large amount of your total monthly budget, and you might have trouble finding a loan.
How much do you need to have saved to make a down payment?
A conventional mortgage loan generally requires a 5% down of the purchase price. If you’re looking to avoid PMI (Private Mortgage Insurance) you will need to put 20% down. With an FHA Loan, the requiring minimum is 3.5%.
Should I consolidate my student loans?
Student loan consolidation means you take out a new loan and use it to pay off other student loans. Consolidating student loans can be a way to simplify student debt, get a lower interest rate, and reduce monthly payments. However, depending on the terms of your new loan, this can possibly cost more over time. Be sure to do the math before making your decision.