Can You buy a Home When You Have Student Loan Debt?

Published: April 24, 2019

If you’re like 25% of Americans, you’re currently making payments on your student loan debt. And if you’re also dreaming of owning your own home, you may be wondering how much your student loan balance will affect your ability to get approved for a mortgage.

How Student Loan Debt Can Affect Your Home-Buying Journey

The good news? Securing a home loan doesn’t have to be contingent on paying off your student loans. In fact, many people are able to comfortably carry student loan debt and mortgage debt at the same time. The key is smart budgeting and understanding how your student loan debt can come into play when you’re looking to buy a home.

When you apply for any home loan, the lender is going to calculate your back-end ratio, which essentially compares your monthly income to your monthly debts. Your student loans are a part of your debts and too high of a back-end ratio can make it difficult to get approved for a loan. Many lenders, for example, will want that ratio to be under about 40%.


Getting Approved for a Mortgage With Student Loan Debt

Take some time to figure out your own back-end ratio by dividing your monthly debt payments (including student loans) by your monthly income. If your result is 0.40 or lower (40%), you’ll probably be in good shape. If your result is higher, then it may be time to work on paying down some of your loans before you apply for a mortgage.

Even with a high back-end ratio, however, you may have options. The key is to find the lender and specific mortgage type that’s right for you. Making a larger down payment can also increase your chances of getting approved for a mortgage with student loan debt, as this will reduce the amount you need to borrow and thus lower your perceived risk, as well.


How Santa Clara County Federal Credit Union Can Help

County Federal offers a wide range of home loan options designed to suit meet your needs and fit your budget. Contact our dedicated knowledgeable mortgage team today to find out more about how we can assist you!


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