If you are like the majority of people out there, then buying yourself a home is on your to-do list not too long after finishing college. What you might not know is that your student loan debt can have a serious impact on your ability to secure a mortgage for that new home.
How Your Student Loan Debt Looks To Lenders
When you apply for a mortgage, the lender pulls your credit report to assess your overall creditworthiness. So, what does the lender see? That you have a (usually) large amount of debt in the form of your student loans. Of course, this doesn’t even include any other debt that you may be carrying. So, overall, it just makes your creditworthiness look poor in the eyes of the mortgage lender.
All of that student loan debt affects your debt-to-income ratio in a really bad way. And if you have multiple loans then it looks even worse since you have multiple payments. Consolidating your student loans can help your credit report look a little better.
The quicker you pay down the outstanding balance of your student loans, then better your credit report starts to look in the eyes of the mortgage lenders. So, if you are serious about buying a home, first get serious about paying down your student loan debt. The best scenario is to fully pay off all of your student loans before attempting to secure a new home loan. If that is not a practical scenario for you, then consider paying some of the balance down while you save up for your home down payment. This is better than just making the minimum payments on the student loans and then applying for the mortgage.