Let’s face it, many young Americans are graduating college with a large amount of student loan debt. They graduate and are now saddled with student loan payments that can be the equivalent of a mortgage payment! There are many options for consolidating student loan payments, putting them on deferrment, or having them forgiven through certain work programs. However, student loan payments are still considered on a mortgage application and can have a larger impact on your mortgage loan approval than you’d expect.
There are many misconceptions about how student loans can impact a mortgage application. Some of the misconceptions include:
- Someone else makes the payments.
- The loans are in deferment.
- The loans will be forgiven after a period of time.
While all of these circumstances may be true at the time of the application, a mortgage lender still has to consider the monthly student loan payments. Many different life circumstances can change and the borrower may become financially responsible for the payments each month.
Someone else may be making the student loan payments each month at the time of the application. However, a lender has to recognize that if that person stops making the payment the borrower can still be held responsible for the payment. Student loan payments may be deferred at the time of the mortgage loan application, but at some point during the 30 year mortgage the borrower will be obligated to pay them. Some student loans are forgiven after working in a certain occupation for a period a time. However, a lender recognizes that the employment in that occupation can end for various reasons and leave the borrower responsible for paying the remaining student loan balances.
Each lender has different guidelines regarding student loan payments. Discuss your unique situation with your lender to see what their regulations are for student loan obligations on a mortgage loan application.