Can I Get a Mortgage If I Have Student Loans?

Understanding Your Qualifying Ratios

Unless you are severely delinquent and your credit has taken a nosedive, your student loans alone shouldn’t prevent you from getting a new mortgage, provided you can afford to pay both.

Lenders will look at your proposed housing and debt-to-income ratios as two big indicators of affordability, along with other factors

Your housing ratio is calculated by dividing your proposed monthly mortgage payment (including escrows, HOA dues, and mortgage insurance premiums) and dividing it by your gross monthly income.

Your debt-to-income ratio is often the more important ratio and is derived by taking all your outstanding monthly debt obligations divided by your total monthly gross income. This is where your student loan payments are factored into the equation.

A good rule of thumb is to try and keep your front-end ratio (housing ratio) below 36% and your back-end ratio (debt-to-income or DTI) below 45%. Although some lenders may allow your DTI to go as high as 50% (depending on your qualifications), it’s not guaranteed.

Forbearance and Deferred Student Loans

Like many borrowers, you may have requested, or your student loans may have gone into automatic forbearance as a result of the COVID-19 pandemic.

Regardless of if you requested this relief or not, if you have student loans that are either deferred or in forbearance, you can still qualify for a new mortgage.

In most cases, these loans will report to the credit bureau showing no monthly payment. If a loan is reported in this way, many lenders will use anywhere from 0.5%-1% of the outstanding balance (depending on the lender) as the proposed monthly payment to help determine your qualifying ratios⁵.

Other Credit Considerations

Simply having good qualifying ratios isn’t always enough to qualify for a new mortgage if you have outstanding student loans. Lenders analyze a variety of factors that go into their decision to approve a new mortgage loan.

Credit Score

In general, most lenders require you to have a minimum credit score of 620. However, some loan programs are more flexible than others. For example, if you apply for an FHA mortgage then you can qualify, in some cases, with a score as low as 580.

Down Payment

The amount of money you choose to put down on your purchase has a tangible impact on your front-end and back-end ratios. The more money you put down the less you have to finance, often translating into a lower payment. Traditionally, lenders suggest a down payment of 20% or more because it waives the requirement for private mortgage insurance.

Employment History

One of the many reasons why borrowers obtain student loans is so that after they graduate, they can obtain a better paying job. Your current income and employment history are both key components that lenders review when making a credit decision.

In some cases, lenders will require at least two years’ worth of stable employment before considering income as stable from that employer. However, there is some flexibility, let's say if you recently graduated or are re-entering the workforce. In some cases, if you can document a minimum stable work history of at least 12 months, that could be sufficient.