How your student loans affect your home mortgage prospects

Though it may not seem fair, your student loan situation impacts your home mortgage outlook.

Many people carry student loan debt, but it’s the amount of the loan and how you handle your student loan repayment plan that will influence your ability to get a home mortgage as well as what your interest rate will be. Here are some specific factors about your student loan that will affect your home mortgage prospects.

Your monthly payment

On your mortgage loan application, you will have to report how much your monthly student loan payment is. This amount will be deducted from your monthly gross income when your approved mortgage amount is calculated. So even if you don’t budget your student loan amount into your monthly expenses, it will figure heavily on how much you’ll be able to afford in a monthly mortgage repayment schedule.

Your payment history

Hopefully, you learned right out of college how important it is to make regular payments on time to your student loan lender. Your repayment history is going to be reviewed when you apply for a mortgage loan. Missing payments and late payments will count against you when your interest rate is determined.

The amount you owe

How much you still owe on your student loan debt factors into your debt-to-income ratio. When it comes to mortgage applications, lenders don’t consider whether your student loan went toward tuition to an ivy league college or a small community college. The only thing that matters are the numbers. As a general rule of thumb, lenders look for a debt-to-income ratio of 43%; however, other factors impact this percentage. For example, if your credit score is exceedingly high, or you have significant assets, or a solid employment history, you may still be eligible for a mortgage.

Don’t let the fact that you have student loan debt prevent you from trying to get a mortgage loan. Check out your credit history about six months before applying and work on remedying any red flags that you notice. With some diligence on your part, you should have little trouble with your application process.