Can Student Loans Impact Your Ability To Get a Mortgage?

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According to a recent Clever Data Center survey, 48% of 1,000 undergraduate participants indicated they would delay buying a home for seven years due to their student loan debt. And more than half of those surveyed said they would start saving for a down payment on a house if their student loans suddenly disappeared.

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It’s clear that student debt prevents many would-be borrowers from pursuing homeownership. But could the loans actually impact your ability to get a mortgage?

The short answer is: yes. However, like most things personal finance-related, the more nuanced answer is: it depends.

How Student Loans Can Impact Your Finances

Student loans can affect your financial standing with a lender in two main ways. First, your credit score will take a hit if you miss payments. Then, if your credit score is too low, you won’t qualify for a mortgage. On the other hand, if you consistently pay on time, your student loans could help your score.

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Second, your student loans get factored into your debt-to-income (DTI) ratio, which is what you owe in relation to what you earn. Ideally, your DTI ratio should be 35% or less. If it’s over 50%, you may have difficulty getting approved for a mortgage.

For example, if you earn $4,000 per month and your debt payments total $2,000 per month (comprised of $1,000 in existing student loans and $1,000 for your potential new mortgage), your DTI ratio is 50%. Lenders may think twice before giving you a mortgage — especially if you have a poor credit score and a low down payment.

But, if you bump up your earnings to $8,000 per month, your DTI ratio is 25%. Lenders will likely be pleased with that figure, despite your having significant student loan debt.

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Related Reading: Did you know student loan debt is the second largest consumer debt category behind mortgages?

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About the Author

Laura has been a freelance writer since 2018. Her work primarily focuses on managing your money, navigating your career, and running a successful business. She earned her MBA and a Bachelor's degree in Psychology during her previous career in human resources. She is also a business coach to new and aspiring freelancers and runs an online resource hub for them called Before You Go Freelance. In addition, she helps other writers get clear on their message, plan their content, and produce compelling written works.
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