It’s graduation season – and one part of adjusting to life after college is paying off your student loans. Yeah, we know — it’s not the most fun to talk about, but we get a lot of questions about it. We thought we’d explain how student loans affect what you can get on a mortgage, and address a popular question: Do deferred student loans still count against you when you apply for a mortgage?
The answer is, yes. Deferred or not, all student loans do play into your DTI (debt to income ratio).
Lenders use your DTI to evaluate if you could handle a monthly mortgage payment, and how much they are willing to offer you in a loan. It’s basically an evaluation of your income vs what your expenditure is each month. With all student loans, lenders are required to take 1% of the TOTAL student loan and calculate it into your debt to income ratio. Say you owe $40,000 in student loans. Your lender will have to calculate your DTI with 1% of the total – meaning they have to weigh it was if you are paying $400 a month toward your loan, and could not use that portion of your income toward your mortgage payment. This is how lenders must evaluate all student loans, whether they are deferred or not.
We get asked a lot about how student loans play into what you can expect to hear from a lender – Hopefully this helps you understand the process and plan for what kind of budget and timeline you might have when you are looking for your new home! And if you have more questions or are in need of a lender, give us a call! We’re Christian Mortgage Lender who values the same things you do – faith and family. And we’ll be more than happy to help in any way we can.
Best,
Audrey
The Christian Mortgage Mom
