How Student Loans Affects Your Home Mortgage Application

Student loans can have an effect on your mortgage application, but it may not be as bad as you think.

When reviewing your home loan application, lenders will review your overall financial situation. All of your debt will be considered along with your credit report and score. Lenders prefer that your debt to income ratio be less than 40%. This means that the total amount of income that is needed to cover the repayment of debt should be less than 40% of your total income, including mortgage payments. Student loans are included in this factor.

It is important to realize that while lenders will consider the fact that you have this debt, they will also consider a number of other factors, and having some college debt will not necessarily ruin your chances of getting a home loan. On the other hand, it is possible that your student loans can hinder your mortgage application.

A Possible Negative Effect


If your monthly payments on your student debt amounts to more than 40% of your income (which is uncommon) then this could prevent your home loan application from getting approved. Normally, these payments are affordable, but if you have a low income, your ratio might put you into a high risk category.

It is important that you manage your college debt properly. That means consolidate multiple loans, and pay all of the bills on time.

On the Positive Side

The good news about student loans is that they normally have low interest rates and they are viewed as more favorable than credit card debt. The lower interest rates make it easier to pay off the loans faster. When your credit score is calculated, a certain amount of student loans will not negatively impact your score like a high revolving balance on a charge account. If you do have some high revolving balances, you should pay this debt before paying your student debt.

Timely repayment is always an important factor in your credit history, regardless of the type of debt. Pay all of your bills on time, and your student loans can help to boost your credit score, as this shows responsible debt management.

If you are able to provide a significant down payment, this will also make you more attractive to lenders. Even if you do owe money to your education, a down payment can raise your chances for approval.

Ultimately, student loans will only threaten your chances of mortgage loan approval if you make late payments or have a relatively low income. Otherwise, you can consider it a positive mark on your credit history.

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