How to qualify for a mortgage if you have student loan?

Having qualified for a mortgage seems like you have broken the back of the beast. The mortgage process does not work like other small debts like payday loans or doorstep loans. You are borrowing way too much money; of course, no lender will hand you money unless they properly analyse your affordability.

It is usually recommended not to have debt at the time of putting in a mortgage application, as this may affect your credit rating and repaying capacity.

A lender will likely be sceptical about your financial situation, but some people have concerned about student debt. It is often asked whether a student loan will stop them from qualifying for a mortgage at affordable interest rates. This blog will discuss each aspect of this scenario.

Is it hard to qualify for a mortgage with a student loan?

Having a student loan will not stop qualifying for a mortgage. Unlike other debts, student loans are handled under different terms and conditions. They do not show up on your credit report, and hence they do not have any impact on your credit rating.

Your borrowing power may not be affected by student debts, but your lender will ask you about them and expect that you will declare it in the application. The question is, if it does not have an impact on your credit rating, why do lenders ask about them while processing your mortgage application.

This is because it will have an impact on your monthly income. A lender will review your income statement to check your affordability. The student loan payment will reduce the amount of money you are left with to pay down your mortgage.

A lender will never risk lending you money when your repaying capacity is suspicious due to a student loan. As these loans do not show on a credit file, you can decide not to declare them on the application, but PAYE workers cannot escape as the payment for these loans is automatically deducted and stated on your payslip.

However, you can avoid showing them on your invoices if you are self-employed. Still, you are expected to declare it so the lender can analyse your repaying capacity as accurately as possible. You can easily have a mortgage signed off on hiding your student debt, but it will be problematic for you down the road.

You will likely find it hard to keep up with payments, attracting late payment fees and interest penalties. You can even lose your house if you continue making defaults. You should show your accounts to lenders because it will help lenders frame a repayment plan that suits your budget.

What if you have a high amount of student loans?

You may not want to disclose your student debt because it involves a lot of money. A high student loan will whittle down your net income, and this will affect your repaying capacity. Of course, there is a chance that a lender will hesitate to sign off on your mortgage. Since you cannot put off your plan of taking out a mortgage, you should follow the following steps to strengthen your application:

• Have a bigger deposit

Having 10% of your deposit size is usually recommended to qualify for a mortgage. Since you have a student loan, your borrowing capacity will whittle down, which means you will have to arrange a bigger deposit size.

A lender will not be able to lend you as much as you want, so you can cover the gap by putting down the deposit size. Try to make it up to 20%. It will be better if it is more than 20%. A healthy deposit size will reduce the loan-to-value ratio. Hence, you can easily qualify for it at affordable interest rates.

• Good credit history

A lender will look over your credit report to see how loyal you have been towards your financial obligations. Though a student debt does not show up on your credit file, you could have other debts such as credit card bills, payday loans, personal loans, and so forth that can affect your credit rating.

Having a good credit score will let you qualify for a mortgage at a competitive interest rate even if you have got too much student debt. San through your report to see your credit score is stellar. If not, you should take out a credit builder loan.

If you manage to pay down all installments on time, your credit score will naturally go up. Check your credit file to see if you are not the victim of identity theft. Have these issues fixed before you apply for a mortgage.

• Strong income

Even though you have too much student debt, you can offset its impact on your mortgage application by having a solid income source. A strong repaying capacity can convince your lender to approve your mortgage application despite a high student debt.

What if you have a defaulted student loan?

Student loans are the least expensive. They carry a very low-interest rate that must not bother you about your repaying capacity. However, chances are you are earning a good amount of money, and you have made a default on your student loan.

It should raise an alarm bell because lenders generally emphasise other factors like your credit history and other debt obligations at the time of deciding on whether or not to approve your mortgage application.

The default will not affect your credit score if a student loan does not show up on your credit history. However, if you default on other debts, it will seriously impact your credit rating, which can lead to rejection.

You should talk to a mortgage broker for a better understanding. They will evaluate your financial condition and then suggest ways to get a good deal. The broker will also check your credit score, but it will not affect your credit rating. You should also do the research yourself.

Use Lloyds bank mortgages calculator for first time buyers to get an idea of how much it would cost you. If you notice that it goes beyond your budget, you should drop the idea of applying for a mortgage until your financial situation improves.

What if your mortgage application is declined due to a student loan?

Chances are, you turned down when applying for a student loan mortgage. Do not lose hope. A couple of mortgage lenders can entertain your application even if you have a student loan. Try to consult a mortgage broker that will introduce you to a suitable lender.

You can get to know some practical ways to strengthen your application. For instance, you can be suggested to apply for a joint mortgage. However, you are still responsible for doing research. Use a joint mortgage calculator to see if you can afford a mortgage deal.

The bottom line

You can qualify for a mortgage despite an outstanding student loan. Because they do not show up on your credit rating, the lender emphasises other factors like defaults on other debts, repaying capacity, etc. However, they will ask you about the student debt to determine your repayment capacity.

Description: Qualifying for a mortgage with a student loan is not difficult at all. They do not appear on your credit file, so they cannot affect your credit history.

Hi I am Molly Harris and I am a mortgage broker. I am currently working with Shine Mortgagers, one of the most reputable online brokers in the market.