Navigating the mortgage maze can be a confusing and daunting task, especially for first-time homebuyers.…
How to Get a Mortgage with Student Loan Debt
Student loans are the most common way to pay for college today, but when you graduate and are ready to buy a house, they can become a problem.
If you have a lot of student loan debt, will you qualify for a mortgage? Better yet, can you afford it?
Here’s everything you must know about getting a mortgage with student loan debt.
Getting a Mortgage: The Basics
Securing a mortgage can seem overwhelming, especially if you’ve never done it before. Fortunately, it can be a lot easier with the proper loan officer by your side.
When applying for a mortgage, you must supply proof you can afford the loan beyond a reasonable doubt. The lender will examine your credit score, payment history, income, assets, and liabilities.
You might think that having student loans would prevent you from getting a mortgage, but they might not. They will play a role in the approval process, but the key is that you can show lenders the following:
- You have a solid credit/payment history
- You have a stable income
- You’re gainfully employed
- You have money to put down on the home
How Student Loans Affect Your Debt-to-Income Ratio
You don’t need to be debt-free to get a mortgage. You can have several types of debt and still get approved, it all depends on your debt-to-income ratio or how much of your monthly income is committed to monthly obligations.
It doesn’t matter the amount of student loan debt you have, but instead, the required monthly payments and how they compare to your income.
Student loans themselves won’t stop you from getting approved for a mortgage. However, student loans, combined with other types of debt, might if they take up too much of your monthly income.
The key is to keep your DTI low to get approved.
How Lenders Calculate Your Student Loan Payment
Each loan program has a different method when calculating your student loan payments. All lenders and loan programs use the reported payment on your credit report if there is one. If not, they use the following to calculate the monthly payment:
- Conventional loans – 0.5% or 1% of your outstanding balance (depending if its through Fannie Mae or Freddie Mac)
- FHA – 0.5% of your outstanding balance
- VA – 5% of your outstanding balance divided by 12 months
- USDA – 0.5% of your outstanding balance
Is Paying Off Student Loans Before Getting a Mortgage Necessary?
Fortunately, the answer is ‘no,’ or millions of people wouldn’t be able to secure a mortgage. However, if you have a lot of other debt, such as car payments, credit card debt, and personal loans, the student loan payments could put you over the edge.
Tips to Make it Easier to Qualify for a Mortgage with Student Loans
If you have student loans, you might have a high debt-to-income ratio, but don’t let that stop you. Even if you have the average student loan debt of $34,800 with a bachelor’s degree, you might still get approved for a mortgage.
Here are some ways to help make it happen.
Pay Off Small Debts
If you have a lot of debts, see which you can pay off first. Chances are, paying off student loan debt would feel impossible, especially if you own $30,000+ in student loans.
However, try paying off your smaller debts, like credit cards or personal loans. This will eliminate a monthly payment and increase your disposable income. In addition, the less income you have tied up in your obligations, the easier it is to qualify for a mortgage.
Consolidate Student Loans
The Department of Education offers a consolidation loan for student loans. This isn’t a refinance; you won’t change your interest rate, but you’ll have all your loans in one payment. This may decrease your monthly payment and free up more income to allow you to get approved for a mortgage.
Refinance Student Loans
If your student loans are private or you don’t need any of the benefits of a federal student loan, such as income-based payment plans, you may consider refinancing your student loan debt.
When you refinance, you use a private lender and can shop around for the best deal. For example, you might secure a loan with a lower interest rate or monthly payment, making it easier to qualify for a mortgage.
Securing a mortgage with student loan debt isn’t as impossible as you might think. The key is to manage your other debts and ensure your income covers everything with room for more. Lenders don’t want you to commit all your income. You must have disposable income to cover the daily cost of living, plus savings.
If you have excessive student loan debt, consider finding other ways to consolidate or refinance it to lower the payments and make yourself eligible for a mortgage.
When it comes to securing a competitive mortgage loan in Pennsylvania (PA) or Florida (FL), partnering with Innovative Mortgage Brokers can make all the difference. We bring our expertise and industry connections to the table, ensuring that you have access to a wide range of lenders and loan products tailored to your unique financial situation.
At Innovative Mortgage Brokers we can be a valuable resource for those with student loan payments who are looking to secure a mortgage. Here’s how we can help:
Assessing your financial situation: We will carefully review your overall financial situation, including your income, credit score, and existing debts such as student loans. This helps us determine your debt-to-income (DTI) ratio, a crucial factor in mortgage approval.
Finding the right loan program: Different loan programs have varying guidelines on how student loan payments are factored into the DTI ratio. At Innovative Mortgage Brokers, we can help you find the most suitable loan program that accommodates your student loan payments and increases your chances of approval.
Exploring flexible loan options: We have access to a wide range of lenders and loan products. We can help you explore various options such as FHA loans, which tend to have more lenient credit and DTI requirements, or income-driven repayment plans that could lower your monthly student loan payments.
Offering personalized advice: At Innovative Mortgage Brokers we provide tailored advice on how to improve your financial profile and increase your chances of mortgage approval at a lower rate. This might include strategies such as paying off smaller debts, consolidating student loans, or increasing your credit score.
Negotiating better terms: We have strong relationships with lenders and can leverage these connections to negotiate better interest rates and loan terms on your behalf. This can result in significant savings over the life of your mortgage.
Assisting with the application process: Securing a mortgage while managing student loan payments can be complex. At Innovative Mortgage Brokers, we guide you through the application process, ensuring that all required documentation is submitted correctly and on time, increasing the likelihood of a successful outcome.
In summary, we can be instrumental in helping borrowers with student loan payments navigate the mortgage process and secure a suitable home loan for you in Pennsylvania (PA) or Florida (FL). By assessing your financial situation, finding the right loan program, and offering personalized advice, we can help turn your homeownership dreams into reality.