Can You Get a Mortgage With Student Loan Debt?
If you’re like many people, you’re a college graduate with more than a little student loan debt – but you want to buy a home. So can you get a mortgage with student loan debt?
Absolutely – and this guide explains.
Can You Get a Mortgage With Student Loan Debt?
It’s possible to buy a home when you have student loan debt. However, you do need to know that having student loan debt may affect your homebuying process in a few ways, including your debt-to-income ratio, your credit score, and your down payment.
Debt-to-Income Ratio With Student Loans
Lenders consider your debt-to-income ratio, or DTI, when they’re deciding whether to let you borrow the money to buy a home. Your DTI is calculated by looking at all the money you owe each month and contrasting it to the amount of money you earn every month. The ratio is converted into a percentage, and the higher it is, the less likely a lender is to offer you a mortgage loan.
Lenders like to see DTIs in the 28 percent (or lower) range. That means no more than 28 percent of your monthly income goes toward your monthly debt obligations (including your student loan debt and housing-related costs). It’s possible to borrow with a higher DTI, but you may not qualify for the most competitive interest rates and terms.
Credit Scores With Student Loans
Your student loan debt affects your credit score, even if you make all your payments on time. The lower your credit score is, the harder it is to get a competitive interest rate on your mortgage loan. And if you have late payments on your student loans (or on credit cards or any other lines of credit), you may need to work on improving your credit score and let some time pass before you start applying for a mortgage.
Coming Up With a Down Payment While Paying Off Student Loans
Every dollar you spend on your student loan payments is a dollar you don’t have to save toward a down payment, which can make coming up with a large lump-sum difficult. However, if you’ve saved enough for a down payment – particularly if you’re using a zero-down or low-down-payment loan product – you’ll be in better shape to start applying for mortgages.
Though it’s not necessarily easy, it’s still possible to get a mortgage loan with student loan debt. The best things you can do are work to lower your debt, save up for a down payment, and ensure that your DTI is low enough for a lender to feel comfortable extending you a mortgage loan.
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