Posted onFebruary 05/2016
There’s a growing concern in recent years about the increasing number of people who are graduating from post-secondary education and finding themselves drowning in student debt. Whether it’s a person earning a general baccalaureate degree or someone graduating from a professional program and entering a lucrative field of work, crushing student debts are following people around for decades after they’ve finished school.
Getting the right education to suit your skills and prospects is invaluable, but tens or even hundreds of thousands of dollars of student debt can really hold you back, especially when coupled with academic inflation and a scarcity of jobs. But the fact is that many people have student debt and they can still become homeowners. This article will detail how your student loan can affect your mortgage.
Analyzing Debt: The Percentage of your Monthly Wage that Pays off your Debts
Obviously, the best case scenario when applying for a mortgage is to have no outstanding debts whatsoever. Unfortunately, for many people, that just isn’t possible. And mortgage lenders know this. For many lenders, a certain level of debt is perfectly acceptable.
The key here is the percentage of your monthly wage that goes toward paying off your debts. Most banks consider a debt load of 36% of your monthly income to be financially sound, though some are comfortable with a debt load of up to 45% depending on the circumstances.
Problems with Student Debt
Student debt can be a bit trickier than other kinds of debt. Your student loan servicer reports to the credit bureaus every 30 days, just as credit card issuers and auto lenders do.
However, you may have a payment deal with your student loan servicer that is not quite reflected correctly on your credit report. Let’s say you have $50,000 of student debt with a monthly payment of $400 a month. The credit report might list multiple loans from several financiers with varying payments that, when added up, show that you owe more than $400 each month. This could be a problem when it comes to calculating your debt-to-income ratio.
Securing a Mortgage Despite Student Loans
If you encounter a problem with your mortgage application because of your student debt, there are a few things you can do. First, you can walk your lender through all your loans and explain the actual nature of your student loan. Second, the Federal government can often be more flexible when it comes to loans, offering grace periods to people who are trying to pay off their student debts.
For more information about how debt might affect your mortgage, please don’t hesitate to contact us.