How Do Student Loans Affect the Ability to Get A Mortgage?

Posted by Richard on July 20, 2023

Your student loans don’t necessarily disqualify you from getting a mortgage, but they can affect your finances, and your finances directly impact your ability to get a mortgage.

One of the biggest ways student loans affect a mortgage is with the Debt to Income ratio (DTI). Lenders use DTI to determine loan eligibility. The DTI includes all your monthly debt payments for things like cars and credit cards, divided by your monthly gross income. Obviously, student loans increase your debt. The lower your DTI, the better. Most lenders want to see a DTI of 45 percent or less. Strive to stay out of credit card debt while you have student loans.

Another way student loans can affect your credit profile is in payment history, which is 35 percent of your total score. Make sure your student loan payments are always on time. If you had any missed payments in the past, you can work to build your credit score now and your current on-time payments will count more than past late payments.

Remember that student loan payments might also interfere with your ability to save money. You’ll need savings for a down payment when you buy a house. Luckily, there are options for government-sponsored loans that have very low down payment requirements instead of the usual 20 percent. Zero down payment VA loans are available to current and former service members. If you are buying in a rural area, the USDA loan also has a zero down payment. These programs also have lower credit score requirements. There are also a variety of first-time home buyer programs that provide assistance or grants.

If you keep your debt low and your payments on time, you’ll qualify for a mortgage and there is no reason to wait to buy a house.