Can you get a mortgage with an outstanding student loan?

Written by bethany eanes
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Can you get a mortgage with an outstanding student loan?
Student debt can affect your mortgage application. (Digital Vision./Digital Vision/Getty Images)

When you apply for a mortgage, lenders will consider your full credit report. This report reflects your past debt history and will include your total outstanding debt at this time. If you currently have a student debt, you will not be disqualified from obtaining a mortgage. Your performance on this debt, your monthly student debt payment and your total amount owed will affect the terms of your mortgage.

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Significance

Lenders use your mortgage application to determine how likely it is you will be able to make your monthly payments on time. Your income is a large factor in this, but the lender also wants to know if a portion of your income is already spoken for. If you have outstanding debts that must be paid along with your mortgage, a lender may become wary you cannot meet all of your financial obligations. For this reason, a lender will always want to know how much other debt you have prior to making a new loan.

Considerations

A credit score is computed based on a large number of factors, and primary among them is your outstanding debt balance. Your balance should be relatively low when compared to the amount of credit available to you, your income and your assets. So, if you have a student loan, your credit will be negatively impacted only if that loan balance is too large given your current financial position. Typically, you should aim for an annual loan payment lower than 20 per cent of your annual income prior to taking on a new loan.

Effects

If you do have a small amount of student loan debt but have good credit and a stable income, you should be able to qualify for a mortgage. However, the effect of the debt will be reflected in your mortgage limits. Since you must make a student loan payment each month, you cannot make as large of a mortgage payment. As a result, the lender will aim to lower this monthly payment by lowering the size of your mortgage.

Potential

To learn your potential mortgage limits, consider using a mortgage calculator. If the calculator does not account for debts, adjust your annual income. Subtract the amount you pay annually to your student loan, and use this figure as your income on the calculator. This will tell you how large of a mortgage you can expect to qualify for at the bank.

Benefits

On the bright side, if you have and pay down a student loan, your credit score will go up a very large amount. Paying off a large loan is the fastest way to build your credit score. By doing this, you can make your mortgage much cheaper through lower interest rates. If you do not qualify for the mortgage you want right now because of your student loan debt, work to pay down that debt and reapply later.

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