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Getting a mortgage can be difficult at any stage of life. But can students get a mortgage, or does that status alone take the option off the table?
The truth is that being a student could make it much more difficult to qualify for a mortgage. But if you're intent on buying a home, you should know that you may be able to snag a home loan even while you're in the midst of your studies.
Qualifying for a mortgage
There are certain criteria you'll need to meet to qualify for a mortgage, whether you're a student or not. These include:
- A solid credit score -- one in the high 600s or above.
- A monthly income that can support your mortgage payments.
- A relatively low debt-to-income ratio (ideally, at or below 36%).
- A down payment of 20% for a conventional mortgage (or 3.5% for an FHA loan, if you qualify for one).
If you're able to fulfill these requirements, then your status of being a student shouldn't hurt your chances of getting approved for a home loan. The problem, however, is that being a student makes it harder to meet these criteria.
Getting a mortgage as a student
Many students have no choice but to take out loans to fund their studies. And many can't manage to work full-time during school. Therefore, while it's possible to have a strong credit history as a student, maintaining a decent level of cash flow is much more challenging. And if mortgage lenders fear you won't manage to make your monthly payments, your applications are likely to be denied.
Specifically, you’re likely to have trouble fulfilling the second and third criteria above. If you’re not bringing in a full-time salary, you may have difficulty proving that buying a house is something you’re capable of. And if you have a lot of student loan debt, that could drive your debt-to-income ratio into unfavorable territory.
Debt-to-income ratio measures how much monthly debt you have relative to your income. If you’re on the hook for monthly student loan payments of $500, plus another $300 in car payments, and your monthly income is only $1,600 because you’re limited to part-time work, you’ll have a high debt-to-income ratio.
Keep in mind that while federal student loans don’t require you to make payments on your debt during your studies, some private loans do require payments while you’re in school. If you’re in the latter boat, qualifying for a mortgage as a student becomes all the more difficult.
On the other hand, if you’re able to pay for your studies without incurring debt (or perhaps have a family member or employer footing the bill), and therefore don’t have an existing loan balance to pay down monthly, then you may have a favorable debt-to-income ratio, especially if you’re earning a decent living while in school. In that case, qualifying for a mortgage becomes much easier.
Furthermore, if you’re able to get a co-signer for your mortgage, whether it’s a spouse, parent, or someone else willing to step up, then you may be able to qualify even if you don’t do a good job of meeting the criteria above.
Can you even afford a home as a student?
Before you think about applying for a mortgage -- and spend time worrying about whether you’ll get one -- think about whether you can actually afford to buy a home. If you’re not working full-time and have a lot of debt, then those monthly mortgage payments may be too much for you to swing, especially when you also factor in the cost of property taxes and home maintenance.
To see whether you can afford a home, create a budget that lists your monthly expenses, including what you’re spending on housing at present. Then, determine how that figure will change if you were to buy a home, and make sure your income allows for it. Remember, too, that if you qualify for a mortgage, you may be able to rent out a portion of your home to offset its cost -- so run those numbers as well.
Will student loans hurt your chances of getting a mortgage once you graduate?
Your student debt alone won’t kill your chances of getting a mortgage after graduation, especially if your monthly payments are relatively low compared to your post-studies income. Furthermore, if you make your student loan payments in a timely fashion, you’ll boost your credit score, thereby making yourself a more desirable mortgage candidate.
If that debt does eat up a large chunk of your income, you might consider refinancing your student loans to a lower interest rate. Doing so will save you money while also lowering your monthly payments so your debt-to-income ratio improves.
Remember, being a student doesn’t disqualify you from getting a mortgage off the bat -- it just makes it harder. But if your finances are otherwise in good shape, and you’re confident that you can keep up with the costs of homeownership, then it pays to apply.
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