Does a student loan affect mortgages? The short answer is yes, but it depends. Though student loans aren’t included in your credit report, they can still affect your ability to repay your mortgage. This can affect your eligibility for a mortgage. Let’s find out how.
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Can student loans keep you from buying a house?
According to the gov.uk website, student loans do not have an impact on your credit rating. However, if you are applying for a mortgage, your mortgage lender will more than likely ask whether you have a student loan.
The mortgage lender wants to check what chunk of your income your monthly student loan repayments are taking. This helps the mortgage lender determine whether you are in a position to make monthly mortgage repayments.
Do you have to declare a student loan on a mortgage application?
Yes, you do. Regardless, your mortgage lender will almost certainly see it on your payslips. If you are self-employed, the lender may request your Tax Year Overview (TYO) and Tax Calculations (HMRC SA302).
There are, however, those earning below the threshold required to start student loan repayments. The student loan, in this case, won’t show on your payslips. It is still important to inform the mortgage lender of your student loan to avoid falling victim to mortgage fraud.
Don’t worry. If you get a wage increase that places you above the student loan repayment threshold, your monthly mortgage repayments might not be affected much. After all, your income will be higher.
Regardless, it may be wise to crunch the numbers so that you can get an idea of how your student loan repayments and monthly expenses might affect your monthly mortgage repayments.
How can I buy a house with high student loan debt?
Your student loan debt won’t affect your credit score. However, other debts, like personal, car and credit card debt can affect your credit score.
First, ensure that you keep your credit score high by paying your loans on time. This gives you a good track record and makes you attractive to mortgage lenders.
Secondly, try to find a house valued within your borrowing capacity. If this isn’t possible, you might need to put up a considerable deposit, which reduces the mortgage value and rate. This means qualifying for a lower LTV (loan-to-value) ratio.
Third, find out which student loan repayment plan you fall under and calculate your average monthly expenses. This might help determine whether you are left with an income that can cover your monthly mortgage payments.
Should I pay off my student loan before applying for a mortgage?
Paying off your student loan before applying for a mortgage might be important if you want to qualify for a larger mortgage. How so? We’ve already seen that student loan debt does not affect your credit score. However, student loan repayments might reduce the income you will use to pay back your mortgage.
Mortgage lenders will look at this income to see whether you qualify for the amount you are borrowing. If you are only looking to borrow a small sum, paying off your student loan before applying for a mortgage might not really make a difference.
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