What to Consider when Applying for a Mortgage with Student Loans

For those with student loans, repayment can feel like a weight that follows you everywhere you go. Will you ever be able to pay it off? Will you ever be able to buy a home?
In fact, 41% of Americans were postponing buying a home because of their student loan debt according to a 2015 Student Loan Hero survey.
While there isn’t a magic solution to getting rid of student loan debt overnight, you can find solace in knowing that it doesn’t have to hold you back.
Taking out a mortgage loan is an extremely important and personal decision. Carefully consider your situation and options, and if homeownership makes sense for you, take a look at our tips for applying for a mortgage with student loans.
Get a handle on your credit score.
Your credit will impact your ability to qualify for a home loan. This is why it’s important to work with a credit restoration professional if yours needs some work. It is important to note however that having student loans doesn’t automatically mean your score will go down.
“We have found that people making on time, monthly payments typically do not have a negative effect on their credit,” said Amanda Frost-Jackson, President of Student Loan Solutions at Frost Financial Advising & Management.

Calculate your debt-to-income (DTI) ratio and decrease it as much as possible.
One area where your student loans could have an impact on your ability to get a home loan is your DTI ratio. Lenders use this ratio to determine a borrower’s ability to pay a mortgage based on what they make versus what they owe. DTI is calculated by adding the total amount of debt, including credit cards and other loans, divided by the total gross monthly income. To determine if your DTI is too high, contact a mortgage loan officer.
“The first step to take is to fill out an application. I can then take a look at their credit report and see if the student loan is affecting their Debt to Income negatively,” said Roger Oliver (NMLS# 1548821), Loan Officer with Supreme Lending.

Consider down payments and down payment assistance programs
It’s always a good idea to consistently make on time student loan payments, but this can often leave little room in your budget to save for a down payment on a home. The good news is that the myth of always need to put 20% down on a house is just that- a myth. Several down payment assistance programs are available, and many of them are geared toward first-time homebuyers!

Know how much home you will be able to afford.
Another reason it’s important to reach out to an experienced mortgage lender early is so that you can get pre-qualified. This will give you an idea of what you will be able to afford and what types of loan programs might work for you.
“It is absolutely possible to get a home with student loans. Just because you have student loan debt does not disqualify someone from getting a home loan. Most of the time, a solution is available down one route or another,” said Oliver.