Should You Take on a Mortgage While You Still Have Student Loan Debt?

Written By Jeff Hindenach
Last updated December 11, 2020

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February 29, 2016

Simple. Thrifty. Living.

You borrowed money to go to school in order to build the foundation of a successful and fulfilled life. Now that you’ve achieved your educational goals, you may feel ready to move forward with another important life goal: owning your own home.

It can be tricky to take on a mortgage while you still have student loan debt, especially if you’re at the beginning of your career. A straightforward way of deciding whether you’re ready to become a homeowner is to ask yourself the same questions a mortgage lender would ask. The answers will probably provide you with the insight you need:

Mortgage lenders evaluate your financial fitness by comparing the monthly loan payments you’re already making against your income. For example, let’s imagine you earn $1,000 every month, and your monthly debt obligations total $250. In that scenario, your debt-to-income ration would be 25 percent. To qualify for a home loan, your salary should be high enough so your debt-to-income ratio does not exceed 43 percent – even with mortgage payments added in. Stricter lenders prefer to see a 36-percent ceiling, so that’s probably the standard you should aim for when reviewing your own situation.

If you’ve been making monthly payments on your student loan debt and generally handling your finances responsibly, you probably have good credit. The higher your credit score, the better chances you have of qualifying for a mortgage with a low interest rate.

In most cases, a mortgage application includes verification that you have a savings account or some other form of liquid assets. This account has to be “seasoned” over time to show a pattern of savings; you can’t just borrow $10,000 from your uncle the day before you apply for a home loan. Having an adequate safety net allows a lender to feel secure about your ability to make mortgage payments, even if you encounter a financial rough patch such as sudden job loss. That rainy-day fund can also be an indication to yourself that you have the financial strength to move forward with a home purchase.

If your answers to these questions show you’re not ready to buy a home yet, don’t feel discouraged. Now you know what to focus on as you look to the future and set new goals for the coming years. And if you are ready to take on a mortgage, start looking for the best rates on sites like Lending Tree.

About the Author

Jeff Hindenach

Jeff Hindenach is the co-founder of Simple. Thrifty. Living. He graduated from Bowling Green State University with a Bachelor's Degree in Journalism. He has a long history of financial journalism, with a background writing for newspapers such as the San Jose Mercury News and San Francisco Examiner, as well as writing on personal finance for The Huffington Post, New York Times, Business Insider, CNBC, Newsday and The Street. He believes in giving readers the tools they need to get out of debt.

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