Readers, this is the third guest post from Bill for you. Now I am even considering offering him staff writer position. This post talks about a very important aspect of our lives, mortgage. He talks about the possible impact an outstanding student loan can cause on your ability to apply for a mortgage. Enjoy the post!
Have you been frustrated by your mortgage company when applying for a mortgage loan? If so, the reason might be you’ve not cleared your student loan or probably other types of loans.
Student’s loans can really hurt your ability to get a mortgage this is because it totally erodes your income level.
Let’s discuss some of the major reason why student loans can hurt your mortgage application and how you can prevent such scenarios to occur. Here is a quick round-up of 51 Possible Part-time Side Jobs for College Students.
Student loans are recorded on a credit report that normally shows how it has been extended for future date when the payment kicks-off i.e. if they are not ready for payment.
All lenders are required by law to account for all debt known to them so as to protect them when one wants to apply for a home loan.
The reason why student loans are wild and obscure, it’s because they can show a payment at $100 per month on an obligation all the way to $500 per month and beyond.
It’s NOT the amount that lenders normally overcome but it’s the multiple students with multiple lenders and each showing different amount of obligations.
The reason why multiple students with multiple lenders reduces the power of borrowing, it’s because a credit report might be showing five different student loans maybe totaling $10,000 and each with a payment of $100 per month. That means it will translate to a $500 per month on obligation which reduces the borrowing power by $20,000.
How do student loan borrowers buy a house?
Let’s look at the path for a student loan borrower who’s trying to buy a house:
- Step 7: Consumer buys a house with student loan and makes repayments of both the principle and the interest rate on both the home loan and the student loan.
- Step 6: Based on the liability of payments, consumer’s purchase prices becomes subject to change.
- Step 5: The purchasing power gets affected by the student loans repayment
- Step 4: Consumers goes to a mortgage company and talks with the lender about buying a house
- Step 3: Buying decision takes the center stage
- Step 2: Consumer completes his/her college and hopes he/she will get a high paying job that will allow him to pay the student loan and purchase a house. Instead of being employed they start their own home business that will earn them more money on the internet or offline.
- Step 1: Consumer makes a huge amount of student loan in excess of $100,000 to pay for college fees.
How to prevent Mortgage Company from frustrating your efforts to acquire a home loan
- If you’re a student and you’re hoping to get a house, I’d advise that you keep away from private lenders when obtain a mortgage loan. The interest rates that are tied with the private lenders are totally high and unfriendly and most of the time they are short-term thus inflating your repayment.
- If you’ve multiple loans make sure to consolidate them so as to reduce your total student loan payment.
- After you’ve consolidated your student loan make sure it reflects on your credit report, otherwise the lender will continue to charge you based on the earlier report.
- In the last one year make sure to avoid any student loan delinquencies as this can results to your home loan application being denied. As we all know, Government are very strict on delinquencies.
- If your credit report states as deferred, make sure to get specific payment amounts from the servicer stating how much you’ll pay for due payment otherwise the lender will use the normal 2% of the principle balance to determine your next payment.
- If you’ve paid your student loan in full and your credit report shows that you still have some amount to pay, make sure you provide legal supporting document to show that you’ve paid in totality.
Over To You
If your work history is limited and you still want to apply for a mortgage, you can still qualify but that will depend with your field of study. If your field of study is in direct contact with home loan lenders then your home loan application can stand a chance of being accepted.
What is your experience when acquiring for a mortgage loan and still you’ve a student loan to repay?
Kindly leave your comments below for discussion.
Thanks a lot and have a Happy Mortgage Loan Day!
About the Author: Bill Achola is author of www.eBusinessReviews.net, a practical blog that to helps bloggers and investors to make wise decision before they invest.
The College Investor says
Tough one! Not everyone is given the opportunity of getting a high paying job that will enable us to pay off student loan debt and apply for a mortgage.
Little House says
I know there are plenty of people out there with student loans and mortgages, but I never realized it could negatively affect the total amount of the mortgage loan. Consolidating the student loans sounds like the best option to make it easier to read and more streamlined on the credit report. Good tips!
Consolidating is the best option, otherwise you might end up being bankrupt
[email protected] says
Student loans have totally held me back from taking on other debt in the past. I think we are all learning that there is nothing good about these loans….ever.
EL @ MoneyWatch101.com says
This is a given that the more debt you have the mortgage loan pre approval amount will be reduced when its time to buy a house. Why, because the future cash flow will be affected by the payments you make.
Kostas @ Finance Blog Zone says
@Tony I would disagree that student loans are never useful – in many situations they’re the only options for a student to attend a school that simply working and saving money won’t pay for (as in many private and top-tier schools). The key is to manage debt responsibly, and the students taking on massive amounts of debt *should* be receiving the education needed to prevent financial abuse.
I agree with you Kostas, student loans are VERY usefull, because to some they are the last resort when it comes to saving money while attending school.
Mortgage lenders only look at the monthly payment of a student loan, not the overall debt owed. Therefore if you have consolidated to lengthen the term for a lower payment this could help.
At $500/month payment, that’s a $6,000 reduction to your yearly debt-to-income ratio.
Anton Ivanov says
Just another reason to avoid student loans altogether or at least minimize them. There are tons of ways to go to school without borrowing money – just do some research online.