Can You Get a Mortgage With Student Loans? A Guide for Homebuyers

Getting a mortgage can be challenging when you have existing student loan debt. Many homebuyers wonder if lenders will approve them for a home loan when they already have monthly student loan payments.

The good news is, you can get a mortgage even if you have student loans However, your student loan debt will impact the size of the loan you qualify for and your interest rate Lenders need to make sure you have the income to manage both debts.

In this guide, we’ll explain how student loans affect mortgage eligibility and home affordability. We’ll also provide tips for securing a mortgage when you have student debt.

How Student Loans Impact Mortgage Qualification

Lenders analyze two key factors when reviewing mortgage applications

• Debt-to-Income Ratio (DTI) – Your DTI compares your monthly debt payments to your gross monthly income. Most lenders want your DTI below 43%. Student loans count toward your monthly debt, raising your DTI.

• Credit Score – While having student loans doesn’t directly hurt your credit, high payments could lead to issues like missed payments that damage your score. A higher score gets better mortgage rates.

Here’s a detailed look at how lenders evaluate these factors for borrowers with student debt:

Calculating DTI for Student Loan Borrowers

Your lender will add your monthly student loan payment to your total debt obligations when calculating your DTI. This includes:

• Federal or private student loans
• Parent PLUS loans you co-signed
• Any refinanced student loans

Deferment or Forbearance

If your loans are deferred or in forbearance, lenders will include an estimated payment in your DTI:

• Fannie Mae – Uses 1% of total student loan balance

• Freddie Mac – Uses 0.5% of total balance

• FHA – Uses 0.5% of total balance

This prevents homebuyers from artificially lowering their DTI by deferring student loans while applying for a mortgage.

Income-Driven Repayment

If you’re on an income-driven plan with a $0 payment, lenders will include either:

• 1% of your total balance (Fannie Mae)
• 0.5% of your total balance (Freddie Mac and FHA)

This accounts for potential payment increases in the future.

Student Loans and Credit Scores

Lenders usually require a minimum credit score of 620 for conventional loans or 580 for FHA loans. Student loans can impact your score in a few ways:

• Late Payments – If you’ve made late student loan payments, your score could suffer.

• Credit Mix – Lenders like to see you can manage different types of credit, including installment loans like student debt.

• Age of Credit History – Older student loans show you have a longer credit history, boosting your score.

• Credit Inquiries – Rate shopping for student loan refinancing causes hard inquiries that temporarily lower your score.

While student loans themselves don’t hurt your credit, be sure to maintain on-time payments and minimize new inquiries when applying for a mortgage.

Tips for Securing a Mortgage With Student Loans

If your student debt will make it harder to qualify for a mortgage, here are some tips that can help:

• Make a larger down payment – This lowers your loan amount so you can more easily afford both the mortgage and student loan payments. Shooting for a 20% down payment also helps you avoid private mortgage insurance.

• Pay down student loans – Paying off some of your higher-interest student debt can improve your DTI. Avoid adding new balances as you save for a home.

• Refinance student loans – Combine multiple student loans into one new loan at a lower rate. This can reduce your monthly payments. Be aware refinancing causes a hard credit check that could temporarily drop your scores.

• Add a co-signer to your mortgage – Including someone else with higher income or a better DTI can help you qualify and get approved together.

• Apply with a non-bank lender – Online lenders and credit unions may offer more leniency on DTI requirements than big banks.

• Ask about loan modifications – Some lenders will approve you with a higher DTI by requiring you put more money down or purchase private mortgage insurance.

Government Mortgage Options for Student Loan Borrowers

Government-backed mortgages from Fannie Mae, Freddie Mac, FHA, VA, and USDA provide more flexible underwriting guidelines for borrowers with student debt:

• Fannie Mae HomeReady – Low down payment option with income limits geared for lower-income borrowers. You can also count student loan payments toward credit qualifying.

• Freddie Mac Home Possible – Similar low down payment option for lower-income borrowers. Can use sweat equity to fund your down payment.

• FHA loans – Offered directly by the government. Requires just 3.5% down and allows higher DTI ratios.

• VA loans – For veterans and active duty military. Feature no down payment or monthly mortgage insurance requirements. Don’t include deferred student loans in DTI.

• USDA loans – For moderate income borrowers buying homes in rural areas. Offer 100% financing.

These programs make homeownership possible for buyers who might not qualify for a conventional loan with their student debt obligations.

Should I Pay Off Student Loans Before Buying a House?

Whether you should pay off your student loans first depends on several factors:

• Your current debt-to-income ratio – If your DTI is already too high, focus on paying down debt to qualify for a mortgage.

• Your student loan interest rate – Pay off loans above 5-6% interest before saving for a home. Keep loans under 4% and stay on track for homeownership.

• Your down payment savings – Don’t drain your down payment savings to pay loans. Most lenders require at least 3.5% down.

• Your home buying timeline – Paying off loans first could delay buying for years. Buying now may make sense if you plan to stay put for several years.

• The real estate market – In competitive markets with rising prices and bidding wars, buying right away could mean missing out on lower prices.

Create a budget to see if you can manage monthly mortgage payments plus student loans based on your income, debts, and savings. Get preapproved to see how lenders will evaluate you before paying off debt.

Alternatives to Paying Off Loans Before Buying

If your heart is set on buying a house, here are alternatives to waiting years until your student loans are paid off:

• Make extra payments to pay loans faster without completely delaying your plans.

• Refinance or change repayment plans to reduce monthly payments.

• Buy a less expensive home that better fits your current budget.

• Buy with a roommate to split housing costs.

• Move to a lower cost-of-living area where you can afford more home on your income.

Steps to Buying a Home With Student Loans

Follow these steps for a smooth process getting a mortgage if you have student debt:

1. Review your credit report

Dispute any errors negatively impacting your scores. Continue making on-time student loan payments.

2. Check your DTI ratio

Use a DTI calculator to see where you stand. Shoot for 36% DTI or lower.

3. Save for a down payment

Aim for 20% down to avoid PMI. Keep saving even if you plan to use a low down payment program.

4. Pay down credit card and other debt

Lenders will consider all your monthly debts. Pay off cards and high-interest loans first.

5. Contact multiple mortgage lenders

Shop around with local banks, credit unions, and online lenders to find the best rates and loan programs.

6. Get pre-approved for a loan amount

This shows sellers you are qualified and ready to move quickly.

7. Make an offer when you find the right home

Ask your lender for a preapproval letter to include with your offer.

Stay patient and be prepared when mortgage shopping with student loans. Following these steps can help you overcome this hurdle and buy a home sooner.