how do loans work

Will School Loans Affect Home Loan Offers?

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If you’re looking to buy your first home in the near future, you might find yourself wondering if your school loans will impact your changes of securing a home loan.


Mortgage lenders look at your monthly income and your monthly debt payments when they calculate how much you can afford to borrow. However, if you make your student loan payments on time and in full, this will show you’ve made the steps toward building positive credit habits.


Calculating Debt to Income

One of the most important factors in getting a mortgage approved is your debt-to-income ratio. To calculate your debt ratio, add up your monthly debt payments, including your proposed mortgage payment, car, credit card minimum payments, and student loan payments, and divide that sum by your monthly gross income.


One rule of thumb you’ll often hear is that your total debt-to-income ratio shouldn’t exceed about one-third of your income for a conventional loan. Sometimes FHA or VA loans let you have a slightly higher debt-to-income ratio but every application is reviewed independently.


Payment History

Another major factor in getting approved for a mortgage is your credit. The payment history of all your credit lines, including your student debt, will be carefully taken into consideration. If you’ve paid your student loans on time, your punctual payment history can positively contribute to your overall score. On the other hand, if you’ve had late payments, these may detract from your score. If you’re planning to apply for a mortgage – or any loan – check your credit report to get an idea of what the lender will see and what your student loan lender is reporting about you.


Managing Your Debt

Although your student loans can affect your ability to get a home loan, there are two ways to maximize your chance of being approved. One is to always pay your bills on time, since timely payments help your credit score. Another is to reduce your monthly payment load. Paying off your student loans is one way to do this. You may also choose to pay down other debts that typically have higher interest rates – such as credit cards. The more monthly payments you can reduce or eliminate, the better your debt-to-income ratio will be.


Increase Your Income

Another way to offset high student loan payments is to have more verified income. If you have a reliable side business, income from savings, or receive alimony or child support, you can include it in your mortgage application, especially if it’s on your tax return. Another option is to get a co-signer if your lender allows it. When you get a co-signer, some or all of that person’s income gets considered along with yours, but the co-signer becomes responsible for your loan.


Other Helpful Tools:

– Article: Moving? Do You Know Your Market & Credit Score?

– Calculator: How Much House Can I Afford?


This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from, Inc.  © 2013, Inc.  All rights reserved.