How to qualify for a mortgage with student loan debt

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NEW YORK – March 31, 2022 – (


iQuanti: Every year, student debt appears to hit a new high, with millions of college graduates carrying tens of thousands of dollars in debt before they even begin their careers. With so much student loan debt, it can be hard to imagine when you can own your first home. According to NAR, more than 50% of homebuyers under the age of 36 said student debt had delayed their home purchase.

However, you may be overthinking the challenge. Even with ongoing student loan obligations, all hope is not lost. Student loans need not prevent young adults from qualifying for a mortgage. Taking the right steps to qualify starts with showing potential lenders that you are as creditworthy as possible, starting with an understanding of your DTI ratio.

What is a DTI report?

A DTI or debt-to-income ratio is a number that lenders use to determine if a potential homeowner might pose a loan risk. When a person’s DTI is too high, the likelihood of them defaulting on their loan is higher. Therefore, lenders make this calculation during the application process to ensure that applicants will be able to make their payments with confidence.

Your DTI ratio compares your gross monthly income to your monthly revolving debt payments. For example, someone who earns $5,000 before taxes and has a monthly debt of $1,500 would have a DTI ratio of: $1,500 / $5,000 = 0.30 = 30%.

Generally, your DTI considers the debts you are required to pay such as:

  • Student loans
  • Car loans
  • Minimum credit card payments

Your current rent or estimated mortgage payment will also be used for this calculation.

How does my DTI ratio affect mortgage demand?

Along with many other factors, mortgage lenders place great importance on your DTI ratio. Typically, they like to see borrowers have a DTI no higher than 36% with a maximum of 28% for the mortgage itself, although some lenders go as high as 43%.

If your DTI is too high, your mortgage application may not be approved. That’s why you’ll want to do everything possible to try and reduce this number before you begin the application process.

What can I do to qualify for a mortgage?

The main thing that any lender will want to see from a borrower is that they will have the ability to make their payments reliably. Even with student loan debt, here are three things you can do to improve your chances of success.

Reduce your debt repayments

Start by focusing on your DTI ratio. The more you can do to reduce your debt repayments, the lower your DTI ratio will be.

To achieve this, consider:

  • Turn your federal student loans into an income-based program
  • Refinance your student loans in one lower monthly payment

When you refinance student loans, you have the option of restructuring your repayment plan and potentially lowering your interest rate. Depending on your existing loans, you could save money on your monthly payments as well as your full loan repayment. Additional savings may be available for borrowers who have both their student loan and their mortgage with the same lending institution.

The benefit of sticking with federal loans is that they come with certain protections, some of which have been highlighted during the extended federal loan repayments and COVID-19 interest suspension. However, if you have the ability to start managing your student loans more aggressively and want to start taking the next financial step, a refinance may be the right choice.

Increase your income

The other side of the DTI ratio equation is your income level. If you can work overtime or do a side job, that will be extra income that you can declare on the mortgage application.

Don’t change jobs

As tempting as it may be to try to get a better paying job, it’s never a good idea to do so before applying for a mortgage. Most lenders want to know that you have worked for at least 12 months to show that you have a stable income.

Keep your credit score high

In addition to your DTI ratio, lenders will also use your FICO score to determine your creditworthiness. Make sure you maintain your credit score by making payments on time and in full, and by using your credit cards responsibly.

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How to qualify for a mortgage with student loan debt