Tons of complications are involved in homeownership, especially on the financial aspects that include mortgage loans. When talking about a mortgage, you cannot separate the issue of credit scores from it, which could easily drag your student loans into the picture.
In fact, many experts say that student loans make it harder for various individuals to apply for a mortgage. Although some say that it’s merely the behavior of home buyers that gives the bigger impact, there’s no denial that loans, debts and other factors could easily affect credit scores.
Given the fact that loans have a significant impact to your credit scores, you cannot disregard your student loan from it.
How Student Loans Affects Your Homeownership on Mortgage Application
Upon applying for mortgage loans, the lender will do some calculations to make sure that you’re eligible to be approved. Of course, they also make sure that you can pay your mortgage payment with lesser hassles, and could avoid late payments too.
How Student Loan Affect Calculation of Lenders upon Applying for Mortgage
When you apply for mortgage loans, the lender will get some data from you, which includes your total monthly debt payments and your total monthly income. Your student loan will fall on the former, together with all other existing loans and debts you’re paying each month.
Say, you have a monthly income of $4,000 before deducting any tax and revenues. Then, you have to pay $600 each month for your student loan, and $300 for other credits like car loans and credit cards.
This means you have a total of $900 worth of loans and debts to pay each month. Divide it by your total monthly income of $4,000, and you’ll have a 22.5% debt to income ratio. Lenders usually have a standard mark of 43% debt to income ratio to approve mortgage loans without much problems.
Fall below that mark, and you have higher chances of being approved, while you can have smaller chances when it goes 44% and higher. Having a lower debt to income ratio can also give you more favorable options for mortgage loans, aside from merely being approved.
This makes it important for you to do some steps to handle your credit scores before applying for a mortgage or even going for a homeownership phase, which includes sorting out some issues with your student loans.
How to Handle Student Loans for Smooth Mortgage Application
To help you minimize the impact of student loans to your mortgage application, or have a smoother application process at least, look for the best repayment plan you can avail. Say, you can switch from standard plan to graduate plan, so you can reduce your monthly payment significantly.
Moreover, make sure not to skip any monthly payment of your student loans. That could easily leave a mark on your credit scores, which could impact your mortgage application as well. If you have late payments of your student loans, contact the lender as early as possible to sort things up.
You should also remember to keep your credit scores and records clean, at least six months or a year before you apply for a mortgage. This can help you avoid some hassles throughout the process.
Sorting out some issues regarding your credit scores can surely give you higher chance of being approved for a mortgage application, and could even give you a better selection of mortgage loans to begin with.
The key here is, you should handle your student loan very well, and find the best repayment option available for you. Moreover, make sure to keep your credit records clean, so you can have far lesser problems when it comes to homeownership.
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