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Student debt is mounting in the US, which is putting up a barrier for borrowers who want to apply for a mortgage to buy a home. As a result of those concerns, some would-be home buyers are reluctant to enter the real estate market.
That’s unfortunate, because in many cases it’s possible for home buyers to qualify for a mortgage loan even with student loan debt.
According to a survey conducted by NeighborWorks America, a nonprofit educational organization, more than half of people who are in their prime years for buying a first home are concerned that their student loan debt will get in the way. Specifically, many feel that their existing debts will prevent them from qualifying for a mortgage loan.
But that’s not always true. It’s entirely possible to qualify for a mortgage with existing student loan debt, as long as the combined debt-to-income ratio doesn’t rise too high.
Fast facts: Nationwide, student loan debt now totals more than $1.6 trillion and accounts for 42% of all consumer debt. Those figures could likely climb higher in the future. Millennials currently carry most of that debt burden, which has risen 130% since 2008. Women, in particular, carry nearly two-thirds of the total student loan debt in America.
The reality is that some folks with student loan debt are well-qualified for mortgage financing, while others might have a harder time getting approved. It partly comes down to the debt-to-income ratio, or DTI. This metric compares the amount of money a person earns (gross monthly income) to the amount they spend on their recurring debts (credit cards, auto loans, mortgage, etc.).
These days, many mortgage programs limit borrowers to having a combined DTI ratio no higher than 50%. But that number isn’t always set in stone.
Related: Why debt is an issue for some borrowers
The sixth annual “NeighborWorks America at Home” survey revealed that a “steady and significant percentage of consumers with student loans worry their debt will affect their ability to achieve homeownership in the future.”
The group discovered that 36% of respondents knew someone who had put off buying a home because of their student loan debt. That was up from 29% in the 2017 survey.
“Student loan debt is increasingly becoming more of an issue and barrier to the home buying process,” said Karen Hoskins, acting vice president of homeownership programs at NeighborWorks America.
This survey also found there’s a common belief that the mortgage lending process is complicated, and that relatively few consumers know how to find “knowledgeable advice about how to qualify for a mortgage and buy a home.”
It’s possible that some of the survey respondents are reluctant to speak to a mortgage professional, for fear that they’ll be obligated in some way. But that’s another misconception. Borrowers who want to find out if they’re a good candidate for a loan can get pre-qualified without being obligated.
This kind of screening process is good for all parties involved. It helps borrowers find out where they stand, in terms of their financing ability. And it gives the lender a chance to develop a relationship with a new customer. In many cases, these conversations are the best first step.
Do you have questions about home loans? Sammamish Mortgage can answer them. We serve borrowers across Washington, Colorado, Oregon, and Idaho, providing mortgage programs to home buyers since 1992. Please contact our knowledgeable staff if you have questions about qualifying for a mortgage loan. Last Updated:
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.