Can You Get a Mortgage With Student Loans?

Student loans have become an increasingly common part of the college experience in recent years. With the cost of higher education skyrocketing, many graduates are saddled with significant student debt. This leads to an important question for young professionals looking to buy their first home: can you get a mortgage if you have student loans?

The short answer is yes, you can get a mortgage with student loans. However, there are some important factors to consider. Let’s take a closer look at how student loans can impact mortgage eligibility.

How Student Loans Affect Mortgage Approval

Lenders view student loan debt similarly to other types of installment loans like auto loans. When reviewing a mortgage application, the lender’s primary concern is the borrower’s debt-to-income ratio (DTI). DTI measures total monthly debt payments against gross monthly income.

Student loans are included when calculating DTI The lender will look at the monthly minimum payment, not the total balance As long as your DTI remains below 50% with the new mortgage payment included, student loans generally won’t pose a major obstacle to approval.

That said, the more debt you have, the harder it may be to keep your DTI at an acceptable level. Borrowers with very high student debt balances usually have higher payments, making it more challenging to qualify.

Your credit score is another key factor. Most lenders require a minimum score of 620-640 for conventional mortgages. If you’ve made consistent, on-time payments on your student loans, this can actually help raise your score. However, falling behind on payments can quickly drag down your credit.

Tips for Getting a Mortgage With Student Loans

If your heart is set on buying a home, there are steps you can take to boost your chances of mortgage approval, even with student loans:

• Consider FHA or VA loans – These government-backed mortgages are more flexible regarding DTIs over 50%. FHA loans allow DTIs up to 57%, while VA has no set cap.

• Get a cosigner – Adding a cosigner with better credit can help you qualify and lock in a lower interest rate. Just be sure they understand the obligation they’re taking on.

• Pay down debts – Reducing credit card balances or other debts improves DTI by lowering monthly payments. Even an extra student loan payment or two can help.

• Increase your income – Working overtime, getting a side gig, or having your spouse work can significantly lift your DTI. Lenders want to see stable income sources though.

• Make a larger down payment – Putting down 20% or more gives lenders confidence you’re financially ready for homeownership. Save aggressively for your down payment fund.

• Choose a less expensive house – Opting for a moderately priced starter home over a larger luxury property can sometimes improve loan eligibility.

Should You Pay Off Student Loans Before Buying?

Whether it’s best to pay off student loans before buying a house largely depends on your specific situation:

• What’s your current DTI? If it’s already near 50% just with student loans, focus on paying them down first.

• How much savings do you have? Without at least a 10-20% down payment plus an emergency fund, buying isn’t recommended.

• What are your interest rates? Pay off high interest private loans aggressively before buying, which saves money long-term.

• Are you on an income-based repayment plan? This could make your actual payments much lower than the total monthly balance. Discuss with your lender.

• Can you afford your monthly student loan payment plus a mortgage? Do the math to be sure.

While being 100% debt-free is great, it isn’t always realistic before buying your first home. The most important thing is keeping your DTI at a manageable level.

Steps to Buying a Home With Student Loans

If your finances are in decent shape, here are the basic steps to navigate buying a home with student debt:

1. Review your credit report – Make sure there are no errors negatively impacting your score. Dispute any inaccuracies.

2. Get preapproved for a mortgage – This shows sellers you’re a serious buyer. Shop for the best rates.

3. Determine your budget – Factor in down payment, closing costs, insurance, taxes, and monthly payment you can afford.

4. Find the right home & make an offer – Consider a fixer-upper to get your foot in the door. Have your agent negotiate the best deal.

5. Finalize loan approval with documentation – Provide pay stubs, tax returns, and student loan details needed to underwrite.

6. Complete inspection & appraisal – Make sure there are no big issues with the property before closing.

7. Close on your new home! – Officially finalize all documents and becoming a homeowner!

The most important thing is being organized, patient, and working with experienced real estate and lending professionals. Don’t be afraid to ask lots of questions throughout the process.

While student loans can be challenging, they are not an automatic disqualification for a mortgage. In fact, homeownership can actually help build financial stability. With prudent planning, you can achieve the dream of owning your own home, even with student debt.