Student loans can definitely affect your ability to get a mortgage, but maybe not how you think. Basically, when a lender is looking at your financial profile, one thing they are looking at is how much debt you pay monthly, compared to your monthly income. This is called your debt to income ratio, or DTI.
Now, I’ve said it before, I’m not a lender, I don’t do mortgages. But this is a question that comes up all the time, so I want to provide as much info as I can. In general, at least according to Experian.com, lenders want to see a DTI of 43% or less before approving you for a loan, and many lenders prefer a DTI below 36%. I have a whole buyer series on this featuring Joshua Phillips from Churchill Mortgage if you want to check it out.
But student loans can also affect your credit score depending on how good you are at making payments. As long as you keep up with those payments, like any other credit, you should be ok.
Another thing that helps your credit score is to keep your credit utilization at a minimum. Just because you have a $6000 limit on your Discover card doesn’t mean you need to use all that money, boo. You need to keep your credit utilization below 30% if you can. (30 percent!)
Obviously there are emergency situations that come up, and we’ve all had to use a credit card to order pizza on Friday night after a long, hard week. But you better pay for that pizza on that credit bill when you get paid next is all I’m sayin’.
Student loans keep people from buying houses, but it shouldn’t be the student loans that scare you. Budget well, plan ahead, save your money for a downpayment, keep a good credit score and you’ll be fine. It may sound like a lot and I’m here to tell you I’m not Dave Ramsey, but hey – the man is right. Sometimes you gotta eat a little rice and beans to have better means.
Good luck out there. I’ll see you next time!