Buying a Home With Student Debt: What You Need to Know

Student debt doesn't have to stop you from buying a home. Understanding how student loans affect your mortgage qualification—and strategies to work around them—helps you achieve homeownership even with education debt.

How Student Debt Affects Qualification

Student loans impact your mortgage in several ways:

Debt Ratios

Your student loan payment counts toward your Total Debt Service (TDS) ratio. This reduces how much mortgage you can qualify for.

Credit Score

Student loans affect your credit score—positively if you're paying on time, negatively if you're behind.

Monthly Cash Flow

Lenders see your student loan payment as an ongoing obligation.

The Math Impact

Example:

• Income: $70,000/year
• Student loan payment: $500/month
• Without student debt: Qualify for ~$380,000
• With student debt: Qualify for ~$320,000

That $500/month payment reduces buying power by approximately $60,000.

Ready to Buy Despite Student Debt?

Get pre-approved to see exactly how your student loans affect your qualification.

Strategies to Qualify

1. Pay Down Before Buying

Reducing your balance before applying improves your ratios.

2. Extend Your Loan Repayment

Lower monthly payments mean better debt ratios (though more total interest).

3. Consider Repayment Assistance

Programs like RAP can reduce or pause payments—but document carefully.

4. Increase Your Down Payment

Larger down payment = smaller mortgage needed = easier qualification.

5. Include a Co-borrower

Partner or family member's income can offset your debt.

What Lenders See

For students loans, lenders typically use:

• Actual payment if loans are in repayment
• 1% of balance if loans are deferred or in grace period
• Monthly payment shown on credit report

Important: Even if you're not making payments (grace period, RAP), lenders assume a payment.

Repayment Assistance Programs (RAP)

If you're on RAP:

• Document your current payment (even if $0)
• Some lenders accept $0 payment in calculations
• Others use 1% of balance regardless
• Having the RAP letter helps your application

FAQ

Q: Should I pay off student loans before buying?
A: Depends on interest rates and amounts. Sometimes buying first makes sense; sometimes paying down debt does. Let's analyze your situation.

Q: Does my line of credit affect me the same way?
A: Credit lines typically use 3% of balance as assumed payment. Student loans may use lower percentages.

Q: What if my student loan is in collections?
A: This is a credit issue, not just a ratio issue. You'll need to address the collections before most lenders will approve you.

Q: Can I consolidate my student debt into my mortgage?
A: Not typically at purchase. After you have equity, debt consolidation refinancing becomes an option.

What's Next

Don't let student debt stop you from exploring homeownership. Get pre-approved to see what you actually qualify for—it might be more than you think.