Student Loans and Getting a Mortgage: What You Need To Know

Student Loans and Getting a Mortgage: What You Need To Know

Do student loans have a negative impact on your ability to qualify for a mortgage? Not necessarily! Of course, there's a bit more nuance to it than that, but the bottom line is that student loan debt alone doesn't make or break your ability to purchase a home. Let's take a look at how student loan debt factors into a mortgage lender's assessment of your overall financial health.

Do Student Loans Affect Getting A Mortgage?

With the cost of higher education at an all-time high, it makes sense why student loan debt seems like such an obstacle to those who carry it. These debts are often the most significant a person will carry prior to obtaining a mortgage. It can seem like a given that this significant debt will make it difficult to get a mortgage. Fortunately, though, this isn't the case, especially in the wake of some FHA rule changes introduced in 2021.

We know firsthand that student debt isn't actually an obstacle when you're buying a house. Many of our happy homebuyers have student debt--it's not a surprise to us, and we don't see it as a bad thing. We don't expect you to walk through our doors without any debts--that's just not realistic. Our goal is to help you get the keys to your dream home while also providing you with expert financial guidance. When we consider your application, we take a look at the full picture of your financial health rather than focusing on a few isolated categories (like whether or not you have student loans).

How We Assess Your Financial Health

What does it mean to look at the full picture of your finances? We assess not only your debts but also your income and credit history to really understand your situation. We see student loans the same way we do other types of debt, like credit cards to auto loans. Specifically, we use these tools (among others) to get a detailed view of your financial history:

• Debt-to-income ratio (DTI)--This calculation gives us an idea of how much you have available to spend on a mortgage after your other debt payments (including student loans) are taken care of.
• Federal Housing Administration (FHA) Guidelines--As of 2021, FHA policy instructs lenders to calculate student loan obligations as the borrower's actual monthly payment based on their repayment plan or .5% of the outstanding student loan balance as an assumed payment if the borrower is making payments of $0 per month. These guidelines ensure that your lender is getting an accurate view of your finances and is fairly factoring your debt into their calculations.
• Credit score--Maintaining a decent credit score of 620 or higher, with no record of recent default or delinquencies, shows us that your finances are healthy. Paying all your bills on time will help significantly in this area.

The combination of these tools leads us to draw more nuanced conclusions about our applicants than you might think up-front. Ultimately, if you're really hoping to achieve your dream of homeownership sometime soon but aren't sure whether it's financially feasible, reach out to your local PacRes branchand start a conversation with a Mortgage Advisor.

Our advisors are focused on helping their clients improve their personal finances, so they'll be happy to take a look at your situation and discuss any concerns you may have. They can help you make an informed decision on whether or not now is the right time to buy. If you end up deciding that now's not the right time, that's fine! Our advisors will still be here when you're ready.