How to Get a Mortgage, Even With High Student Debt

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Americans continue to carry a staggering amount of student loan debt, with the potential to derail many people’s hopes of buying a home.

The most recent data shows that US student borrowers – 45 million people – owe around $1.7 trillion in student loan debt. Which does student loan debt is the second category of consumer debt, behind mortgage debt, but more so than car debt and credit card debt.

For potential buyers, carrying excessive student loan debt may deter them from applying for a mortgage. This is understandable, because the idea of ​​adding mortgage debt to student loan debt can cause some home lenders to reject a mortgage application.

But that line of thinking is actually irrelevant, say mortgage experts.

“With good credit, homebuyers who have student loan debt can get a mortgage,” said Jon Boden, strategic financial advisor at Real Estate Bees, in Suwanee, Ga. manage, depending on the type of loan the buyer is considering.

As with most home loans, experiences vary depending on the borrower’s unique financial situation.

“It’s hard to put a value on the mortgage experience — it’s different for everyone,” said Rick Pendykoski, owner of Self Directed Retirement Plans LLC, in Goodyear, Az.

To start, most people need a FICO credit score above 720 to get a decent mortgage rate and lower their mortgage insurance.

“A FICO credit score below 720 usually means you pay higher mortgage insurance rates and premiums,” Pendykoski told TheStreet. “Getting a mortgage is much more difficult than getting a car loan or a credit card. Most of the time people just apply for a car loan or a credit card and it is either approved or denied.

The main problem? With a mortgage application, all personal information is reviewed and investigated. “This includes debt-to-income ratio, creditworthiness, income, savings, and three years of tax returns, among other financial benchmarks,” Pendykoski said.

If you can’t demonstrate good credit, having an income-based student loan repayment agreement can pave the way for mortgage approval.

“This means the payment agreement is based on the borrower’s income and the terms set at that time,” Pendykoski noted. “Therefore, the mortgage lender must adhere to the repayment terms set out in this agreement. This is the fact, even if you pay more on the balance each month than is due under this agreement.

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How you handle your student loan matters

Also, as with any large loan, mortgage lenders will want to know the payment history of a student loan – good or bad.

“Student loan debt is not a particular area of ​​interest compared to any other type of debt, such as a credit card balance or a car payment,” said Tabitha Mazzara, director of operations at the Mortgage Bank of California (MBAC), in Manhattan Beach. , Cal. “It all goes into the same calculation of your credit score and how lenders look at you. If you make your payments on time, that looks good, and if you’re often late, it’s not.

The NGC also looks closely at a borrower’s debt-to-equity ratio, which is the ratio of how much you earn to how much you owe.

“If you have a huge student loan balance, but that’s offset by a good income, you’re not short-changed,” Mazzara told TheStreet. “A loan balance of around 36% or less isn’t bad – we recommend checking out the many online calculators to find your number. But even if it’s high, we can find a way to work with you. , so don’t give up too soon until you’ve spoken to a reputable mortgage lender.

So having high student debt doesn’t necessarily mean no lender will give you a mortgage, but it could mean paying a little more interest.

“Keep in mind that a home is a long-term investment, and as time goes on and you’ve paid off your student loans, you may be looking for a better deal through refinancing,” Mazzara said. “If you have a good education, hopefully that will translate into a good career, and your buying power will only increase as your student debt goes down.”

When Student Loan Debt Won’t Hurt

Mortgage experts say it’s relatively easy to get a mortgage even in today’s higher interest rate environment with a credit score of 740 or better, a down payment of at least 5% and salaried or full-time employment.

“Borrowers with lower credit scores (up to 580) may qualify for a government-backed FHA loan with a 3.5% down payment, but will need to provide additional proof that they can repay the loan” , said Denny Ceizyk, housing and mortgage expert. at Student Loan Hero by LendingTree. “Self-employment or variable commission income can make the approval process more difficult, as lenders must average income over several years to ensure it is stable.”

That said, as long as your student loans aren’t in default and you have a repayment plan with a written monthly payment, getting a low-interest mortgage isn’t that hard.

“Mortgage lenders are allowed to use a written payment plan from a student loan creditor even if the payment is $0 (which isn’t uncommon if you’re just entering the workforce and asking an income-based student loan repayment plan)”, Ceizyk “However, if the loans are always deferred, the lender should estimate the monthly payment based on a percentage of your student loan balance, even if they don’t are not being paid off. This could make it more difficult to get a home loan, or reduce the amount the mortgage company will lend you.

“That’s why it’s a good idea to make sure you have all of your student loan payment information in order before applying for a mortgage,” Ceizyk added.

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