Linda R. from Ohio asked: I have $80,000 in several student loans, but since I consolidated all my student loans, the monthly payment is approximately $400. Other than this student loan, I’m debt free. Do mortgage lenders view student loan debt differently than other types of loans? Also, what other factors will they look at when determining my qualifications for a home loan?
Student Loan Guru: First off, congratulations Linda on being debt free other than your student loans. Since I’ve been involved with my Kids college education and spending a good amount of time helping other Parents send their kids to college, I can say that I’ve never seen a student loan that was in good standing being treated any different than any other type of long term debt.
In your case, about the only difference is that in the future, you could always ask for a hardship defference if something was to come up. But I’ve never seen a lender consider this when looking at a loan. There are too many other things that they’re worried about.
As long as the payments extend past 10 months in the future, the lender will only use your monthly payment as part of your qualifying ratios. The total debt isn’t that big of deal with most lenders. What will matter more is your payment history on the student loan: it should be perfect. It all comes down to the quality of your credit history (your FICO score) and your qualifying ratios of debt/income.
Something else you might want to consider due to the current state of the economy. You may want to hold off buying right now and focus and getting those student loans payed down until the employment climate stabilizes. Sure, you can always ask for a hardship deference, but that doesn’t necessarily mean you’ll get it. Plus, have you student loans paid down, or paid off altogether, will give you a big pile of cash to put down on your new home.
I wouldn’t even begin to think about buying a home if I couldn’t come up with at least 20% down. More would be great. I’d also look at a fixed rate, 15 year mortgage with payments no greater than 25% of your take home pay. If you can’t swing this, then you should step back and reconsider buying a home. Once you can swing it, then you’ll be setting yourself up to stay debt free for a long time.
Now I know this is an unpopular view on buying a home, but those who tell you differently are usually up to their eyeballs in debt. Ever since I became debt free, things are a lot different. I don’t get upset over bad financial news I might here, I don’t worry about losing my job or my house and I sleep a lot better at night. Oh, did I tell you about the pile of cash I have saved and invested?
Many people will never realize how great it is to be debt free and all your hard earned money going into savings or investments. No, they have to have their stuff NOW! Of course, this is how this country got into this mess in the first place. People too impatient and greedy, not to mention lazy, to save their money and delay gratification. No, they wanted 100% home loans with adjustable rates. Okay, you got them, see what happened?!
Linda, you’re own your way to a very bright and lucrative future if you just remain patient and continue to pay off your student loan debt and do not go out and get into any other debt. Remember, slow and steady wins the race. It sounds like you’re doing everything right, just keep on this straight and narrow road and you’ll be able to buy the house of your dreams. And who knows, by the time you have those loans paid off, which shouldn’t be long, you may not need a mortgage broker for a home loan, you can just use your cash!
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