Skip to content Skip to sidebar Skip to footer

Can I Get a Mortgage with Student Loan Debt?

Want to get a mortgage and buy a house, but you're buried under student debt? Here's what you need to know.

For decades, the conventional route to homeownership has been to finish education, pay off debt, build an emergency fund, start saving for retirement, save for a down payment, and then buy a house. Furthermore, you should never spend more than 35% of your net income on housing.

However, most Canadians have rewritten that script in the last twenty years or so, prioritizing home ownership before debt relief or even retirement. Since the outbreak of the worldwide pandemic, the government has abolished interest on federal student loans (though provincial loans continue to accumulate interest), leaving even less motivation to pay off low-interest debt. As a result, many Canadians have switched their attention away from debt relief and toward gaining entry into the hot property market.

But what about their school loans? Is it possible to get a mortgage with school debt? Is it going to affect your mortgage approval? Yes, you can acquire a mortgage with student debt, but it will have an impact on your mortgage approval.

Find the best rate for you

The size of your down payment, the value of your home, and whether you're buying or refinancing all influence your mortgage rate.

Student Loans and Mortgage Affordability

Student loans have the most significant influence on your mortgage affordability, which is the amount you may borrow based on your existing income, debt, and living expenditures. The more affordable your mortgage is, the more expensive a property you can afford to buy.

Total debt service ratio and gross debt service ratio are two measures used to determine mortgage affordability. To estimate how much housing you can afford, these ratios take into account your income, debt, and living expenditures.

The first criteria of affordability is your gross debt service ratio, which is unaffected by student loans. The total debt service ratio is the second guideline of affordability. This ratio takes into account your home expenditures, such as principle and interest on your mortgage, taxes, and heating bills, as well as your overall monthly debt burden. This total sum should not exceed 40% of your overall monthly earnings. Your student loans will have an influence on this ratio because it takes into account your debt. Here's an illustration.

Assume you and your spouse have a combined annual income of $110,000 and a $50,000 down payment. Your maximum purchase price would be $520,475, based on today's best mortgage interest rate of 1.65%. Your affordability lowers to $491,268 if you add $700 in monthly student loan payments. The difference in maximum affordability between paying off student loans and carrying that debt is $29,207.

This restriction applies to all debts, so if you have auto loans or credit card debt in addition to student loan debt, your affordability will be further impacted.

Credit Score and Mortgage Affordability

While your student loans will have a direct influence on the price of the house you can buy, they will also have an indirect impact on your ability to obtain a mortgage due to the way they affect your credit score. Student loans are a form of debt that can be reported to Canada's two major credit agencies, Equifax and Transunion. As a result, if you've made on-time payments on your student loan, your credit score will benefit.

Student loans, on the other hand, will have a negative influence on your credit score if you haven't made regular payments on them or have been late on them. Your prospects of acquiring a mortgage may be harmed if you have a poor credit score.

Post a Comment for "Can I Get a Mortgage with Student Loan Debt?"