Skip to main content

Get A Mortgage Despite Student Loan Debt

Many college grads put off buying a home simply because they face mountains of student debt. The amount people owe on student loans has increased astronomically in the past decade, breaking the $30,000 average per borrower in 2014.


While many grads feel they can’t afford a home until they finish repaying these loans, but that isn’t actually always the case.


In many instances, individuals and couples who owe student loans can still qualify for a mortgage.

Take Stock of Finances & Calculate Your DTI

One way lenders calculate whether you can afford a mortgage loan is by looking at how your total debt would compare to your current monthly income. This is known as your debt-to-income (DTI) ratio.


Most lenders use a DTI threshold of 36%, meaning your payments on your debt, including student loans, credit card debt, and a mortgage, should be less than 36% of your total monthly income. For instance, if your total income each month is $5000 and you make payments of $250 each month toward your student loans, your current DTI would come out to 5%.


A mortgage would increase that significantly. If you take 36% of your monthly income of $5000, your threshold would be $1800 each month. Subtract from that your student loan payments of $250, and you have a maximum $1550 you can dedicate toward a mortgage, which is often more than sufficient for a home.


In many cases, your student loan payments won’t be quite as significant as you might think when it comes to affording a mortgage. However, in cases where finances are especially tight, it can still be a deciding factor. Every little bit will help in those scenarios.

Pay Debts on Time

Another aspect of your financial profile that lenders look at when considering whether you qualify for a mortgage is your credit score. This is essentially a measurement of how reliable you are when it comes to repaying debts, such as student loans and credit cards.


The better you are at keeping up with those payments and making them on time, the higher your credit score will be, which can be a good thing for college graduates with student loans in repayment.


Even if your DTI ratio isn’t ideal, you might still qualify for a mortgage if you have especially good credit. While payments may be a bit more difficult to manage, you’ll have shown that you are consistent with making payments on time and avoiding default on your debts. Some lenders may be willing to make an exception in these cases, so it’s useful to ask around.

Refinance Your Student Loans

In cases where your student loan debt tips the scale on your DTI ratio, one option that may be available to you is to refinance your student loans through a private lender. This can get you a lower interest rate, thereby reducing the proportion of debt you have compared to your monthly income.

Start Saving Now

If your debt-to-income ratio simply cannot fit below the threshold, you may want to consider making a higher down payment. Putting up more upfront will not only reduce the total amount of debt you owe on your mortgage—thereby reducing monthly payments—but it will also increase the odds of approval even if you don’t quite get below the 36% threshold.


In particular, borrowers who make a 20% down payment on their mortgage are very rarely turned away since they have already made a large financial commitment toward their investment while also eliminating the need for private mortgage insurance.


However, most recent college graduates may not be able to make that kind of payment right off, especially since many of them lack savings of any kind. There are many ways to save up for a down payment, however, including:


  • Eating out less often and packing lunch to work
  • Lowering the thermostat a few degrees
  • Bike or walk rather than drive to save on gas
  • Use Netflix instead of Cable
  • Go running rather than relying on a gym membership
  • Using a dedicated savings account to start accumulating interest
  • Opening a retirement fund—Roth IRAs can be very tax friendly in these cases


Over time, combining all of these can help you save thousands every year that you can put toward a down payment.

Take Advantage of New Rules

In most cases, lenders don’t maintain mortgages themselves. Instead, they sell them to entities such as Fannie Mae, which is the main reason why there are so many restrictions and requirements set for these types of loans.


Recently, Fannie Mae has made some changes to their policies that work in favor of those who are repaying student loans. These include:


  • Fannie Mae now allows lenders to acknowledge that you might be paying less than 1% per month on your student loans (previously, the rule was to assume payments were
  • 1%, which could be sizeable).
  • Non-mortgage debt that is being paid by someone else, such as an employer or your parents, may now be excluded from DTI calculations.


In addition, Fannie Mae is now more lenient when it comes to DTI requirements, potentially allowing ratios above 45%. This means lenders are more likely to approve applicants who have a less-than-ideal DTI ratio since Fannie Mae is more willing to purchase them.

Get A Mortgage Despite Student Loan Debt

If you’re repaying student loans, purchasing a home may still be an option. This is especially true if you have strong credit, are able to make a solid down payment, and avail yourself of outside assistance and recent changes in policy.


Getting a mortgage while you have a lot of student loan debt isn’t the right decision for everyone. But, it could be a good option for you, depending on your financial status and goals. To learn more about your mortgage options, check out these tools and resources:

Popular posts from this blog

Commercial Loans and The Community

We’ve all heard them. There is no shortage of cheesy jokes about bankers. By the very nature of their profession, they are easy prey to comedians. What you don’t hear very often is the truly good things community bankers do.  Some success stories have enough “feel good” to supply the Hallmark Channel with a line up for six months. For the sake of explaining the impact of community banking, let’s take a look at the fictional town of East Park.

East Park was a thriving downtown village in the 50’s, 60’s and the early 70’s. Huge buildings with charming storefronts lined the streets.  At the heart of the downtown district was the local drug store where people sat on swivel chairs and caught up with each other over a grilled cheese sandwich and a root beer float. People liked that you could get your prescription, buy a birthday card and have lunch, all right there in downtown East Park.

The demise of East Park’s downtown was something that took place over an extended period of time, but th…

From Hometown To Campus, We've Got You Covered

We offer products and services to meet the needs of our customers throughout the many different stages of life. Here are the best ones for college students.

Checking with Perks Where else can you get roadside assistance, cell phone protection and discounts all from your checking account? Gain access to the FirstPerks app when you open a Checking with Perks account and enjoy over 450,000 discounts and deals from national retailers and local businesses. Use this budget-friendly feature of the FirstPerks app to save money in your hometown or at your favorite places around campus.


Card Control with MobiMoney Maintaining academics and a social life can be challenging and the last thing you want to deal with is a missing check card. With MobiMoney, you can turn your card on or off from your mobile device. But that’s not all. MobiMoney also allows you to set spending limits and monitor transactions within the app or by receiving instant alerts via text message. You can even set merchant prefer…

Choosing The Right Payment Processing Equipment for Your Business

Operate your business smarter, not harder by choosing the right payment processing equipment.
There are a multitude of duties and responsibilities that demand your time when you’re running a business. Aside from managing inventory, supervising employees and all the other administrative duties, your payment system may not be top-of-mind, which could be a deal-breaker when it comes to making your business more profitable. Choosing the right equipment can seem like a daunting task, but it’s all about understanding how you want to get paid.


Accepting credit cards, checks or both If you accept credit cards, the Clover suite of products makes doing business easier by providing you with the right mix of POS hardware and software allowing your business to accept credit cards, EMV® chip and contactless payments like Apple Pay® from customers, safely and securely.

Powered by technology from First Data, an industry leader in payment processing solutions, Clover is not just an EMV solution, it&#…