Can I Get a Mortgage If I Have Student Loans?

While it can seem scary to get a home loan while you still have student debt, converting your rent payment to a mortgage can help you build a more financially stable future. Here’s a bit of information on securing a mortgage while paying off student debt.
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The train of thought generally goes like this: You should wait to pay off your student loans before buying a home. Why would you want to embrace more debt before paying off the loans you already have? Besides, no responsible lender is going to approve someone already swimming in debt.

Sounds like an open-and-shut case, right?

Not necessarily. While it’s easy to think this reasoning is bulletproof, there are plenty of people who qualify for a mortgage while paying off student loans. Sometimes, it’s actually the best option available.

Your mortgage payments may be less than you’re paying in rent, you may live in a buyer’s market, or you may be looking at temporarily incredible interest rates (like during the recession). For these reasons and more, student loan debt shouldn’t be the only deciding factor in whether or not you purchase a home.

But how do you make it happen?

How student loans affect the mortgage process

It’s not impossible to get a mortgage while you have student loans—but it may be more difficult for you to qualify.

A big reason is your debt-to-income (DTI) ratio. The DTI ratio is how your monthly debt obligations compare with your income. According to the Consumer Financial Protection Bureau, lenders like to see a ratio of 43% or less. Your student loan payments may push you into a higher ratio, which can disqualify you for a mortgage.

To find your ratio, add up how much you pay for all debt (auto loan, student loan, credit card, personal loan, etc., payments) and divide it by your monthly gross income.

Your student loan payments may also make it harder to save for a down payment. A down payment of 20% is necessary to avoid paying private mortgage insurance, or PMI, something lenders require if you don’t have enough equity in the home. A higher down payment can help you qualify for lower interest rates, saving you more money in the long run.

How to qualify for a mortgage with student loans

Keep your credit score in check—your credit score is what lenders use to verify how responsible you are. A score of 740 or higher is necessary to get the lowest interest rates, and those with scores below 640 will struggle to find a lender. You can increase your credit score by making payments on time, using 30% or less of the credit available to you, removing any delinquent marks on your score, and avoiding opening new lines of credit.

Refinance your student loans

One of the best ways to lower your debt-to-income ratio and free up some cash flow is to refinance your student loans. When you refinance, you can often get lower monthly payments and save money on interest. You can sock away the extra money for your down payment or an emergency fund.

Have an emergency fund

Lenders want to know that if your water heater breaks or you lose your job, you’ll be able to continue making your mortgage payments. An emergency fund with at least six months’ worth of expenses is recommended. The more money you have saved up, the less you have to worry about whatever home repair you might need.

While qualifying for a mortgage with student debt is hard, it’s not impossible. Treat the act of researching whether you can do it like you would a paper at college, and see if you can find ways to qualify. It could pay off in the long run.

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