Do Student Loans Affect Buying a House?

So, can I really buy a house with student debt?

While it might seem mortgages and student loans don’t mix, especially when the average borrower owes more than $35,000, the truth is that there are financing options available for both new and existing homeowners.

While outstanding student loans do affect buying a house in small ways, you can still qualify for a mortgage with Cake. Unless you are severely delinquent and your credit has taken a nosedive, your student loans by themselves shouldn't prevent you from qualifying. We’ve just got to make sure you can afford to pay both. 

How to Get a Mortgage With Student Loans

Here's how we do it. We'll look at your proposed housing and debt-to-income ratios as two significant indicators of affordability and other factors. First, your housing ratio is calculated by dividing your proposed monthly mortgage payment (including escrows, HOA dues, and mortgage insurance premiums) by your gross monthly income.

Your debt-to-income ratio is often the more critical ratio. This is derived by taking all your outstanding monthly debt obligations and dividing them by your total monthly gross income—this is where student loans do affect buying a house.

A good rule of thumb is to keep your front-end ratio (housing ratio) below 36% and your back-end ratio (debt-to-income or DTI) below 45%. Cake may allow your DTI to go as high as 50%, depending on your qualifications.

What if COVID-19 impacted my payments?

Like many of our borrowers, you may have requested, or your student loans may have gone into automatic forbearance resulting from the COVID-19 pandemic. Regardless of whether you've asked for this relief, you can still qualify for a new mortgage.

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

Do other factors affect buying a house besides student loans?

Here are a few other factors that go into our decision to approve a new mortgage loan.

Get Pre-Approved

So to make a long story short, student loans do not affect buying a house with Cake. The good news is you can still qualify for a home mortgage regardless of your student loans. Call our concierge team, and we will help guide you through the process and get you the best rate. Life's better with Cake.