Having a college degree can help you land a more desirable job, ideally with a higher income. But if you took out loans to finance your education, those will need to be repaid over several years.
If you’re aiming to purchase your first home, carrying outstanding student loan debt can make it more challenging to qualify for a mortgage. Lenders want to ensure you’ll be able to repay your mortgage on top of your existing obligations.
Here’s what you need to know about how student loan debt affects your mortgage eligibility, how your debt-to-income (DTI) ratio works, steps you can take to improve your chances of qualifying, and loan options to consider.
How Student Loan Debt Impacts Mortgage Loan Approval
Student loan debt affects mortgage approval primarily through your debt-to-income ratio. As Dennis Shirshikov, finance and economics professor at the City University of New York, explains: “Mortgage lenders assess your ability to repay a loan. If you are already straddled with hefty student loan debt, they fear you might not be able to manage another loan obligation on top of that.”
“When lenders assess your loan application, they will carefully consider the percentage of your gross monthly income that goes toward paying your debts. Having high student loan debt can worsen this percentage, making you less appealing to lenders.”
Shirshikov puts it this way: “Picture yourself as a juggler, keeping balls in the air. Each ball represents a different kind of debt: credit card, student loan, car loan, and so on. If you have too many balls, it becomes increasingly difficult to keep them all up. Similarly, each debt you carry consumes a portion of your income — and the more debt you have, the riskier you appear to lenders.”
Understanding DTI
The “percentage” discussed above is your debt-to-income (DTI) ratio — an important metric lenders use to assess your creditworthiness.
To calculate your DTI, divide your total monthly debt payments — including your estimated mortgage payment, student loans, credit card debt, auto loans, and any other obligations — by your monthly pre-tax income. Most lenders require a DTI under 43%, though some will allow up to 50%. To access the most competitive rates and options, aim for a DTI under 43%.
Personal finance expert Andrew Lokenauth recommends going even lower: “I would aim for a DTI of 36% or less, if possible.”
For example: if you earn $5,000 per month and already pay $1,500 monthly toward student loans, credit cards, and a car loan, that’s 30% of your income committed to debt before a mortgage payment is even factored in.
Strategies to Help Qualify for a Mortgage Loan
Federal student loan payment relief that was in place during the COVID-19 pandemic ended in 2023, with interest resuming in September and payments restarting in October of that year. If you’ve been navigating repayment since then, here are strategies to improve your odds of mortgage approval:
- Pay down your debts. The more you reduce your outstanding debt, the lower your DTI — and the better your odds of qualifying. Prioritize debts with the highest interest rates first, as these increase your overall balance most quickly. That said, don’t drain your savings to eliminate student loans entirely: lenders will need to see enough liquid assets to cover your down payment, closing costs, and reserves. Closing paid-off accounts can also temporarily hurt your credit score. The better approach is to continue making on-time payments and consult with a mortgage professional about whether any specific debts are a concern for your application.
- Improve your credit score. Your three-digit FICO score (ranging from 300 to 850) is one of the most important factors lenders evaluate. A higher score improves your chances of qualifying and getting better rates and terms. To build your score: pay all bills on time, maintain low balances relative to your credit limits, avoid applying for new credit, review your free credit reports and dispute any errors, and don’t close existing accounts.
- Save for a larger down payment. As Shirshikov notes: “The more money you can put down upfront, the less you will need to borrow and the more appealing you will look to lenders.”
- Increase your income. Lokenauth advises: “Try to get a promotion, second job, or side gig.” Note that income from a new side gig typically won’t count as qualifying income until you’ve been earning it consistently for at least two years.
- Consider a co-signer. Adding a co-signer with a strong credit profile and income can help improve your DTI ratio and overall loan eligibility.
Mortgage Loan Options When You Have Student Debt
Even with student loan debt, you should be able to qualify for most major loan programs — assuming you meet the requirements for DTI, credit score, loan-to-value ratio, down payment, and other criteria.
- Conventional loans. Conventional loans may allow a DTI of up to 50% and a down payment as low as 3%. Refi.com requires a minimum credit score of 620 for conventional purchase loans.
- FHA loans. FHA guidelines allow for down payments as low as 3.5%, with more flexibility on credit scores than conventional loans. However, most lenders — including Refi.com — require higher scores than the FHA program minimums. Refi.com requires a minimum credit score of 620 for FHA purchase loans. DTI must generally be 43% or less.
- VA loans. Available to active duty service members, veterans, and surviving spouses, VA loans require no down payment and no mortgage insurance. The VA does not set a minimum credit score, but lenders typically do — contact Refi.com for our current VA credit score requirements. The lender will generally prefer a DTI no higher than 41%.
- USDA loans. Available to qualified buyers purchasing in an approved rural area, USDA loans also require no down payment. DTI cannot exceed 41%. The USDA does not set a minimum credit score, but lenders typically do — contact Refi.com for our current USDA credit score requirements.
The Bottom Line
Outstanding student loan debt won’t automatically disqualify you from getting a home loan — but it does make preparation more important. Focus on reducing your DTI, building your credit, and saving for a down payment before you apply.
As Shirshikov advises: “Overall, focus on improving your financial health — not just to get a mortgage and eliminate your student debt but for overall stability and peace of mind, too. Work on increasing your earnings and savings and maintaining a solid credit history as well.”
When you’re ready to take the next step, explore your mortgage options with Refi.com — we’ll help you find the right loan for your situation.
