Your Student Loan Debt Can Affect Your Eligibility to Get a Mortgage

Published on January 18, 2018

– 4 min read

Getting prequalified to buy a home is an exciting, yet nerve-wracking first step toward homeownership.

If you are thinking about finally buying your first home, there are many things to consider. In addition to saving up for a downpayment, you have likely started to research what is required to successfully apply for and receive a mortgage. One concern that many new home buyers have – especially those from the millennial generation – is how student loan debt might affect their ability to buy a home.

If you are unsure as to whether or not your student loan debt could be impacting your chances of getting a mortgage, explore some of the top deciding factors.

You have late or missed payments on your student loans

As with any kind of debt, being late on your payments can negatively impact your credit score. Depending on the individual credit reporting habits of your student loan provider, late payments of 30+ days can be reported. Late payments that show up on your credit report can lower your credit score, which can have negative consequences when it is time to apply for a mortgage. Less than satisfactory credit scores can cause you to receive higher mortgage interest rates. If your score is low enough, your application may even be denied. Thankfully, late or missed payments are 100% preventable. To ensure that you do not forget your payment, set up monthly auto payments. Also, if you are late on a payment due to a temporary financial situation, many student loan providers offer deferment and forbearance options that do not hurt your credit score.

You have a large amount of student loan debt

While high student loan debt doesn’t always impact your ability to get a mortgage, your debt-to-income ratio does. If the ratio of your student loan debt (and your other debts) are high when compared with your income, you may be required to pay down your debt before receiving a mortgage loan. Aside from trying to earn more money, or to pay down your debt, you can also explore student loan forgiveness programs to see if you qualify.

You haven’t been able to save up for a downpayment

Monthly student loan payments can quickly add up. Rather than saving hundreds of dollars per month toward a downpayment on your new home, those with student loan debt must spend that amount on their monthly loan payments. If your high student loan payments are leaving you with little extra cash, you may be eligible for reduced payment amounts. Contact your student loan provider to see what options are available for your unique financial situation. Additionally, you may want to look at loan options with lower down payment requirements, such as FHA loans, or you could look into down payment assistance programs.

Although it isn’t always the case, student loan debt certainly has the ability to impact your chances of getting a mortgage loan. Thankfully, for each barrier, there are solutions that you can pursue to reduce the likelihood that your student loans will affect your mortgage application.

Ready to learn more about mortgages and buying a home? Clara is here to help! Chat with one of our licensed Loan Specialists or get your personalized rate quote in 3 minutes.

Steven Fung
Steven Fung is a licensed Loan Specialist at Clara with over 17 years of experience. When he doesn’t have his mortgage hat on, he enjoys repairing old cars and working on home improvement projects.
Want to know how much house you can buy? Calculate Home Affordability

Clara is an online lender helping individuals and families finance their lives in a more efficient, transparent and empowered way.

Learn More

The Clara Team is Now Part of SoFi

We are excited to announce that the Clara team is now part of SoFi. Three years ...
We are excited to announce that the Clara team is ...
1 min read

Questions to Ask a Home Inspector

Before you buy a home, it’s important to order a home inspection from a profes...
Before you buy a home, it’s important to order a...
4 min read

Negotiating After Home Inspections

After a home inspection, you as the buyer are in a position to think through the...
After a home inspection, you as the buyer are in a...
3 min read