Are you thinking about buying a new home using a mortgage loan? If you’ve just graduated from college, you’re probably wondering how your student loans will impact a mortgage and what your options are. In today’s post we’ll share three things that you need to know about mortgages if you’re still working on paying off your student loan debt.
#1: Yes, Your Student Loans are part of your Application
Student loans are generally disclosed on your credit report, so your lender will see the balance, payment, and payment history. Recent guideline changes have actually made qualifying for a mortgage when you have student loan debt easier and more “common sense” than previous guidelines. Student loans get a bad rep when it comes to their impact on your mortgage qualifying, but the reality is that they’re treated like any other debt including car loans and credit cards.
One thing to keep in mind with student loans, though, is to know the details and share them with your loan officer up front. Are you on an income-based repayment plan? Are the loans forgivable? These details will help your loan officer provide you with a bulletproof pre-approval.
#2: It’s All About Your “DTI” Ratio
Your debt-to-income ratio is going to be a significant factor in the success of your mortgage application. This figure helps to determine how much money you need to send out to balance your debts each month versus how much you’re bringing in from working. If this ratio is too high, it’s a signal that you may not be able to juggle all of the payments you’re responsible for making. Also, keep in mind that over time, your job and income situation will change and this can affect your DTI ratio as well. If you’re a recent graduate with a job offer on the table, you can use your future income to qualify, which can make a huge difference in your DTI.
#3: Missed Payments Can Cause Serious Problems
Finally, you’ll want to ensure that you don’t miss any student loan payments. Even one missed payment – for any reason – can cause significant damage to your credit rating or FICO score. Successfully managing a higher-than-normal debt load means being strict with your budget and responsible with your payments. If possible, try to have your student loan payments taken out from your bank account automatically. That way you won’t forget or miss the payment deadline.
While it may be a challenge to manage multiple types of debt, it’s not impossible. Juggling student loans with a mortgage can be done and offers the benefit of building your net worth while paying off your past loans. For more information about getting a mortgage when you have student loans, contact one of our trusted mortgage advisors today. We’ll be happy to share our insight and make recommendations that fit your situation.