By Neena Vlamis, President of A and N Mortgage

Millions of Americans find themselves with substantial student debt after graduating from college. Significant student loan debt makes it difficult to buy a house for many reasons. First, those monthly student loan payments make it hard to save for a down payment. Also, potential borrowers with a boatload of student debt are less attractive to lenders. The more debt borrowers are carrying, the greater the risk to the lender. 

Still, it’s possible to secure a mortgage for a new home while paying down your student debt. You’ve got to dot all your i’s and cross all your t’s, though. And, hopefully, in the time since graduation, you’ve prioritized making on-time payments to improve your credit score and landed a high-income job to justify that student debt.

Financing a home is a big undertaking that can be a vital step towards financial freedom if you’re adequately prepared. Carefully managing your student loans and considering how they’ll impact your application will help you on the path to homeownership. 

Here’s what mortgage lenders will look for if you carry substantial student debt. Avoid these pitfalls and follow this sound advice to put yourself in the best position to apply for a home loan while you still have a student loan balance. 

How Student Loan Debt Affects Securing a Mortgage

When lenders review your mortgage application, their primary concern is ensuring that you’ll be able to repay whatever loan they give you. Like any mortgage loan applicant, your lender will review tax and income information to assess how much you can afford to pay each month. They’ll also consider your credit score and outstanding liabilities to determine your credit risk. When taken together, this information provides an accurate picture of how much you can afford to pay towards a monthly home mortgage payment. 

Since the amount of student debt varies widely, it has different consequences for potential homeowners. Unfortunately, many people who hold student debt, particularly millennials, state that their student loan debt is the reason they are not able to buy a home.

For some, the monthly student loan payments are too large to allow them to save up for a sizable down payment. For others, the amount of debt-to-income (DTI) is of concern to lenders. With high loan balances from the loans used to obtain a degree, lenders worry that adding another massive liability to outstanding credit may be risky. 

Student Loan Impact on Credit Scores

Student loans can have multiple impacts on your credit scores.  Overall, they’re an essential indicator of your creditworthiness, so if you’re planning on getting a mortgage, pay attention to your score.  

While high balances aren’t great for your credit score, consistently paying them down with on-time payments can build your credit history and boost your score. That shows that you’re consistent and responsible for your obligations. It follows, then, that you would also likely be good at making your monthly mortgage payments.

The opposite is true, too. The student loans by themselves won’t damage your credit beyond repair, but missing payments will significantly lower your credit score. To avoid this, make sure to pay your bills on time.

Student Loan Impact on Debt to Income Ratio

Lenders use the DTI metric to determine your credit risk by assessing your current and future income measured against your monthly payments. This ratio gives lenders a clear picture of how well they can anticipate you will be able to handle your monthly loan payment. 

To calculate your DTI before applying for a mortgage, add up all of your recurring monthly debts. This figure includes credit card minimum payments, car loan payments, student loan payments, and any other debt payments that you make each month. Then, divide that total number by your gross monthly income, which is everything that you earn before taxes or other types of withholdings. To be qualified for a mortgage, lenders prefer that you have a DTI that is lower than 43%.

For example, consider a woman who makes a monthly student loan payment of $260 and pays $140 for a car loan. Taking on a $1600 monthly mortgage payment would require her to afford $2,000 in monthly expenses. If she earns $6,000 every month, her DTI (2000/6000) is 33%. Even though she makes a monthly student loan payment, she earns enough income to comfortably satisfy her obligations. They would be well below the lender’s standard 43% DTI requirement to secure a mortgage. 

If another individual has those same obligations but only has $4,000 in monthly income, DTI rises to 50% with a $1600 mortgage payment. In this case, the person might struggle to satisfy all debt payments every month, and it will be challenging to get a mortgage for a house that costs that much. 

Reducing Your Student Loan Debt

If your DTI is too high because of your student loan debt, prioritize paying it off. These are some popular solutions to reducing your student debt:

  1. Make larger monthly payments – Work hard to pay off your student loans as quickly as possible. Put extra money towards your payments each month instead of going out to eat. Keeping to a strict budget will help you reach your goals of homeownership more quickly. 
  2. Get a side gig – Ask for a raise if you can, and apply any monetary bonus towards your student loans.  Start a side-hustle or take on part-time or freelance work. Apply that extra income towards your loans, increase your down payment, and decrease your DTI thanks to your higher income. 
  3. Refinance or consolidate your loans – Consolidating federal student loans makes them easier to manage and pay on time by rolling them into one loan with a single monthly payment. Consider refinancing for a lower interest rate if your student loans are with private lenders. You’ve had the chance to build your credit a bit by this point and may be able to reduce your monthly payment.

Other Tips for Getting Mortgage Loan Approval

1.Check your credit report and work to improve your score. This is one of the most important things that lenders consider when applying for a mortgage. Higher credit scores also translate to lower interest rates, so do what you can to boost this number in advance of your application.  

  • Pay your bills on time to build a solid financial reputation. 
  • Keep a good handle on your credit utilization. Ensure that you aren’t spending too much of your available credit by paying off or paying down your credit cards. 
  • Avoid opening new credit lines or making large purchases, especially near when you’re ready to buy a home. Hard pulls on your credit can negatively impact your score. 
  • Keep old credit accounts open since they can positively affect your score if you are in good standing. 
  • Review your credit report often and report inaccuracies to the credit bureau if you find them.

2.Improve your DTI ratio. This ratio is also a sticking point for lenders. Without enough money to comfortably satisfy all of your current obligations, the lender’s position is not secure. 

  • Enroll in an income-based repayment plan. Your minimum payment will be proportional to your income. A reduced monthly minimum payment may be enough to lower your DTI below the threshold.
  • Pay down your current debts. Prioritize paying off your loans. With fewer liabilities, lenders will be more likely to offer you more favorable mortgage terms. 
  • Refinance your student loans. With a longer, satisfactory credit history, private lenders may lower your student loans’ interest rate, reducing your minimum monthly payment to help you meet your DTI.

3.Check out down payment assistance programs for first-time homebuyers. Down payment assistance programs provide homebuyers with grants or forgivable loans to help them into a new home. 

4.Make a larger down payment to improve your application. If family members have offered gifts to help you get into a new home, putting more money on the table can help your case. 

5.Consider getting a co-signer or co-borrower. Their participation can potentially boost your loan balance and lower your interest rate. By guaranteeing that payments will be made on time, you’ll be able to add an additional income and credit history into your mortgage application. 

Additional Read: COVID-19 Impacts: Guidance On Mortgage Payments, Student Loan Debt, And Banking

A and N Mortgage is Here to Help

It may be a bit more challenging to secure a mortgage while carrying lots of student debt, but it can be done. By monitoring your credit and making timely payments to service your student debt, you show your potential lender that you are creditworthy.

Having a DTI that puts your debts below 43% of your income is imperative if you apply for a mortgage. To get that number, you may have to prioritize paying off some of your student loans or picking up a part-time gig to boost your income. 

Regardless of your strategy, getting a mortgage is possible even if you have student debt. It may take a little more time, patience, and attention on your part, but the team of experienced mortgage professionals at A and N Mortgage can help. Contact our team today to improve your chances of qualifying for a mortgage and buying your first home.


A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.


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