Getting a degree is a significant investment in your future, but with the rising cost of living and tuition fees, many graduates leave university with substantial student debt. For qualified professionals, that investment often pays off with higher earning potential and fortunately, student loan repayments are tied to earnings. Despite this, many young professionals worry that their student loan debt could stop them from getting a mortgage. Fortunately, that’s not the case.
Student debt shouldn’t stop you from getting a mortgage. Lenders assess student loan repayments as part of your total financial outgoings to ensure you can manage the monthly mortgage repayments. Having a good credit score, a stable income, and a larger deposit can strengthen your application.
It’s natural to have questions about how your student debt affects your mortgage eligibility. In this blog, I’ll tackle some frequently asked questions and describe how mortgage lenders view student loans to give you the confidence to take the next step.
Ready to take the first step toward home ownership? Contact Goldmanread for advice on getting a mortgage with a student loan. We are mortgage brokers in Essex with a wealth of experience in helping newly qualified professionals get on the property ladder.
Does having a student loan affect mortgage eligibility?
When you apply for a mortgage, the mortgage lender will consider your complete financial circumstances, including income, debt, and credit history. While your student loan will play a role, it’s just one part of the overall picture.
Here’s what else lenders look at:
Income-to-debt ratio
Lenders calculate your income-to-debt ratio (IDR) to work out if you can make monthly mortgage payments alongside your other commitments. Essentially, they compare your monthly income to your monthly debt, including student loan repayments, credit card payments, car finance, and other loans. A high IDR signals that the applicant is financially stretched, so the lender may not be willing to lend as much.
While many young professionals are repaying student loans, providing their overall IDR remains within the lender’s acceptable range, most lenders will consider them for a mortgage.
Declaring your student loan repayments on your mortgage application
As part of a mortgage application, the lender will ask about your monthly financial commitments, including your student loan debt. You must fully disclose details about your student debt. Withholding details such as this is considered mortgage fraud, which could have serious consequences and affect your credit score.
Include the monthly student loan repayment amount
The good news is that student loan payments increase in line with salary, and you don’t have to pay anything back until your income hits a certain threshold. That means that for most graduates, it’s a manageable repayment that shouldn’t affect mortgage eligibility. You should include your monthly repayment amount on your application, along with your other commitments, such as credit card payments.
If you haven’t reached the student loan payment threshold yet, you’ll still need to tell lenders about your student debt on your mortgage application. You should disclose the total balance and note that you are yet to reach the threshold for repayments. This gives lenders reassurance that your student loan isn’t currently impacting your monthly outgoings.
Declare changes
If you expect any changes to your income or student loan repayment amount before the mortgage is finalised, inform your lender. For example, if you are due to receive a promotion or get a pay rise, being transparent and upfront helps lenders assess your application accurately and proves you are a reliable candidate for a mortgage.
What if I have multiple student loans?
If you have more than one student loan, e.g. undergraduate and postgraduate loans, lenders will consider your combined monthly repayments. Although having multiple loans increases your monthly commitments, it’s still possible to get a mortgage as long as the rest of your finances are stable and well-documented.
How to improve your mortgage application with student debt
Here are some steps you can take to improve your chances of a successful mortgage application stronger, even if you have outstanding student loans:
Check your credit rating
Student loans do not affect your credit rating, but check your credit file to make sure it is accurate and up-to-date. You can access your credit report online from one of the three main providers: Experian, Equifax or TransUnion.
Minimise other debts
The lower your monthly outgoings, the more likely you are to be offered a good mortgage deal. Clearing personal loans or reducing credit card debt may improve your IDR and show that you’re managing your finances responsibly. It’s also wise to avoid taking on too many other credit commitments in the run-up to applying for a mortgage.
Increase your deposit
A larger deposit reduces the loan-to-value (LTV), which gives lenders confidence in offering higher income multiples and better interest rates. If you can, hold off for a while and save as much as you can to improve your chances of being approved and getting the deal you need.
Make regular student loan payments
Lenders don’t look kindly on student loan defaults, so it goes without saying that you should keep up with your monthly payments. Be aware of your balance, and it doesn’t hurt to make the odd voluntary repayment to prove your creditworthiness.
Is it better to pay off student loans or save for a house deposit?
This depends on your personal and financial circumstances, but it’s often wise to prioritise saving for a deposit. Clearing your entire debt may feel like a relief, but it isn’t usually essential for getting a mortgage.
Student loan repayments are income-based and have lower interest rates than mortgages, which makes them more manageable in the long term. Plus, increasing your deposit will reduce the LTV, meaning you may be offered lower interest rates and more favourable mortgage terms.
Take the first step to getting a mortgage with Goldmanread
At Goldmanread, we understand your concerns about balancing student debt with the desire to buy your first home.
We’re here to help you understand your options, answer your questions, and provide support as you take your first steps onto the property ladder. As mortgage brokers, we have access to hundreds of mortgage lenders and thousands of deals and can help you make an informed decision.
Reach out to us today to explore mortgage options tailored to your needs.
Frequently asked questions about getting a mortgage with student debt
Can I use a mortgage to consolidate my student debt?
Mortgages are secured loans where your property is used as collateral. Student loans, on the other hand, are unsecured loans tied to your earnings. So, unfortunately, a mortgage cannot be used to consolidate student debt.
Is student loan debt bad for buying a house?
No, your student loan will not stop you from being able to buy a home. As long as you have a good credit history, a steady income and a reasonable deposit, most lenders will consider you.
How long should I wait after graduating to apply for a mortgage?
There is no hard and fast rule, but it’s a good idea to wait until you have a stable job and a good credit history. Allowing one to two years to pass and building a consistent income and credit history will help your mortgage application.
Does the amount of student debt affect mortgage affordability?
The amount of student debt you have doesn’t impact your chances of getting a mortgage. What matters to lenders is the monthly repayment amount in the context of your total outgoings, not the outstanding student loan balance itself.
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