Monthly Archives: November 2015

Can you obtain a mortgage with a large amount of student loan debt?

Everyone knows a mortgage is based on your history of creditworthiness, your ability to repay the loan, and having enough assets to make the down payment needed for the mortgage. Note that after the down payment you should have sufficient funds left over for an emergency fund.

Can your student loans play a role in weather or not you are approved for a mortgage?, Absolutely they can. Your student loans can effect your debt to income ratio, your credit history, and loan to value ratio. If your student loan debt is high this can effect your generic risk score. Your generic risk score is one of the primary factors for mortgage approval and the best possible rate. Your credit report will reflect how well you have managed your burdensome student debt, and missed payments will hurt. Your lender will pull all 3 credit reports so there is no hiding it.

Student loan debt is an unsecured installment contract, but it does not need to be secured since you cannot go bankrupt on the debt, nor does the passage of time, even decades absolve it. This can help enhance your credit report however, if you have kept up a steady payment history on the account. Add to that your hopefully good payment history on some credit cards and you should be looking good, if your wages can support paying the student loans, the mortgage and living expenses. Student loan credit utilization ratio is never a factor here, unlike credit card credit utilization which would be a factor.

Your mortgage lender may require an additional step, since student loan debts tend to be quite large. They may require you to obtain a payment verification letter from your student loan provider. This is not out of the ordinary so do not stress over it, I guarantee you will not be the first nor the last person to have approached your student lender for verification purposes. As long as you have stayed current in the last year for your payments you should be fine.

Your biggest hurdle will be the down payment for your home. Since most college grads income goes towards basic living costs and their student loan debt you may find it hard to get ahead savings wise. Lenders want to see you have accumulated sufficient assets to make a significant down payment. There are some first time homeowner programs in your area you may qualify for, you can check with your cities H.U.D office to see which, if any programs you qualify for.

All in all as long as your debt to income ratio for front end and back end is not to low, and your credit report looks decent you should be able to get your mortgage. Again this is provided you can afford the down payment barring any assistance for a first time home owners program, many of which include down payment help.