Getting a Mortgage With Student Loans

This article describes about taking a mortgage when you have a student loan debt. All the details are given below:

Updated by Anuroop C on 29th January 2020

Having student loans in your life is a big financial commitment that usually seems to never end. But it is also very important for us to achieve other important financial goals in life like buying a house or a car, or if you want to build a business and want to take a mortgage. But sometimes the student loan aspect affects our financial ability to achieve these goals that would make us happy. In order to tackle this student loan debt, which is quite a challenge, a lot of proper planning should take place, so that your whole mortgage process takes place efficiently and easily. Though it can be tough to get a mortgage, it is not an important task. A proper planning and self-controlled execution, combined with a little bit of hard work will get you closer to your dream. But before we go into the process, here are some reasons why you should consider taking a mortgage, especially if you are a person who thinks no more spending till your debts get cleared.


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Why you should NOT consider taking a mortgage when you already have a student loan debt?

It is a stress

Mortgage upon student loans can be a lot of mental stress

It reduces your financial freedom

If you want to buy a new car or something a little bit costly, you are most likely to skip it because you already have a hell lot to pay for. And you can’t afford to quit at your work in case there is some issue, as you have loans to fulfill.

Low income or credit scores

You might have just skipped a few months due to a layoff or some problem. Your credit score is in bad condition. Then you might want to have a little time off on taking mortgages till you get back on the track.

Why you should consider taking a mortgage when you already have a student loan debt?

Your student loans can go on for years, usually decades

Student loans take a lot of years to be fully paid off. Student loans taken in college could last for years, which might be important hard working and the money-making years in your life. If you postpone for later, you might never get the option again to take that financial risk.

Student loan payments are often small amounts

Student loan individual payments typically amount to a few hundred dollars a month, although some payments are awfully a lot. Hence it does not seem like a bad idea, especially if you have had a recent raise or got a high paying job.

It can make you feel satisfied

The LITTLE things you buy with the mortgages can make you feel satisfied and a lot happier. We don’t think you will require a better reason than this that will pursue you to take that mortgage and fulfill your dream!

But taking a mortgage is a financial complication that has to be dealt with with utmost care and brain. And that is why we are here to help you.

The most important thing that you have got to remember is you have to convince your lender that you will pay back all the money with interest for the loan amount that you have borrowed. So here are a few things you can do to gain your lender’s trust.

Find the best student loans that suit your needs

Reduce your Debt to Income ratio

Your debt to income ration should be at the least possible to qualify for a mortgage. It is one of the most important factors on your application that affects your ability to get a loan. Most of the loans follow a 28/36 percent ratios for you to qualify for a mortgage. It means that on the front end it should be a maximum of 28 percent and on the back end( means that your estimated mortgages and debts included) it should be a maximum of 36 percent.

In case you don’t fall under this income, you can improve it by:

Enroll in an Income-Based Repayment Plan

An Income-Based Repayment Plan lowers your student loan payments to a more suitable, lower payments according to your current income status and thereby improving upon your DTI ratio.

Try to pay off your debts

Try to reduce the principal loan amount of your loan whenever possible. Like whenever you get a bonus or a monetary gift from your late aunt Chippy, try and pay off your debt at once, which will improve your DTI ratio.

Refinance or Consolidate your student loan

Doing this can reduce your monthly loan payments, which, thereby will increase your DTI ratio. Refer Refinancing student loans or Consolidation of student loans to know more. Choose from the best companies that refinance your student loans.

Try to increase your income

Though this is the most obvious one, executing it will be a tough one. You can ask for a raise, or find a second job to do that

Increase your credit score

To get a mortgage or a loan, your lender checks your credit score. A good credit score not only means a guaranteed loan, but it also means you will get a good interest rate as the credit score is the only factor with which the lender can check your authenticity. So just simply improve your credit score. Well, it is not as easy as it is said. But you can still do the following to improve your credit score.

Pay your bills on time

The most obvious one, paying bills on time will improve your credit score since it usually accounts for 35%of your credit score. One of the best options that you will help you pay your loans on time is the autopay option. 

Avoid new credit lines

Do not apply for a new loan or credit card, as these will require a hard inquiry that will decrease your credit score.

Keep the accounts open

Even once paid off, keep your accounts open as they are your are prized possessions! Just kidding, but your past payment history accounts for almost 15% of your credit score. It is important that you show that you successfully and faithfully paid a loan in the past and are ready to pay the next one you take.

Credit Utilization rate should be reduced

Lowering this rate is important as this accounts for around 30% of your credit score. Reduce your use of credit cards(Yes, they are tempting and provide you with financial freedom). But the utilization should be less than 35% of your available credit balance to give you a good score. 

Get your mortgage approved 

This is the last and final step. Yes, you have reached your goal. Once you have improved your credit score and you have a very good Debt to Income ratio, you are ready for a mortgage. Do proper research on the different options that are available in the market and go with the best plan and options that include a low-interest rate and an optimum period for your repayment. Here are a few things you have to do to get your mortgage:

  • Provide your details and credit score

  • You should show recent pay stubs, bank statements, W-2s, tax returns, and other financial paperwork

In case you are planning on buying a house, before you go searching for a house, make sure that you have your mortgage pre-approved. And make a list of all the options that are available at your dispense. In case you are a first time home buyer, then look at the first time buyer house options along with the Federal loan options that you can make use of.

Getting a mortgage is a big financial decision and risk. Although having a student loan does not itself prevent you from having a mortgage, having a student loan debt increases the risk multifold.  But if it can be dealt with care, you can easily manage to get one and pay off them as well. However, you can also look to pay off your student loans faster. Well if getting this mortgage will help you do something you love and make you happy, isn’t it worth the risk?