Does a student loan affect getting a mortgage? If you earned a degree recently, then there’s a good chance you’re still paying off your student loan. You may think you can’t get a mortgage with a big student loan, but that’s not the case. Getting a mortgage with a student loan is both possible and common.
How does having a student loan affect getting a mortgage preapproval?
As anyone with a student loan knows, you start making repayments once you earn over approximately $21,000 a year before tax. If you earn a salary or wages then the payments are taken out of your pay check automatically. When a lender is assessing your income, they will take those payments into account and reduce your available income accordingly.
If you have an intimidatingly high amount of student loan debt, there is some good news. Lenders don’t care about the balance left to pay. The reason being, the terms and conditions of student loans are very different from other forms of debt:
- The repayments are locked in at 12% of your income, so if your income decreases, so do your repayments.
- The government can’t call in your loan.
- The repayments are taken automatically if you’re earning a wage or salary – so there’s no way to get into arrears.
- If you’re living in New Zealand then the loan is interest free.
If I’ve only got a small amount left to pay, should I pay it off rather than getting a mortgage with a student loan?
In the instance where you have enough deposit, but not enough income for a mortgage, then paying off your student loan could be a good move! If you can pay off your student loan without losing your deposit, then you would be able to increase your available income. However, if you have any other debt, such as credit cards or personal loans that incur interest then you should pay those off first.
If you already have enough income then you would likely be better to focus on having as big a home deposit as possible. You’ll be paying interest on what you borrow for your home, whereas the student loan is interest free.
This is of course very general advice and everyone’s situation is different. The details of your circumstances matter. It’s always best to talk to a mortgage broker for advice specific to you.
So, while a student loan will reduce the amount you can borrow as it reduces your calculated income, it doesn’t necessarily mean you can’t buy your own home. We pride ourselves in being specialists who find mortgage solutions for people with all sorts of situations and complexities. If you want to know what is possible for you, and to get expert, practical help, reach out to Platinum Mortgages today. We’re here to help!