Myth-Busting: Will student debt stop you buying a home?
At Lifetise, our goal is to shower you with the confidence and know-how to make life’s biggest decisions. What better way than to demystify complex decisions – like buying your first home. Debunking any fears or misinformation that get in the way of you going after this goal.
So this week, we’re tackling a very common worry. Lots of people ask us: “will student debt stop me buying a home?” It’s understandable. Student debt often feels like a massive burden. But the good news is it shouldn’t stop you getting on the property ladder. For most people, student debt should not prevent you from getting a mortgage.
Read on for some serious myth-busting. You’ll come away with a great understanding of how student debt impacts your ability to get a mortgage and buy a home.
True or False? Student loans are the same as other types of debt
False! The idea that student loans are treated the same way as any other debt is a myth. The major reason for this: student loans will not show up on your credit report like other debts do. So generally, lenders will not know about the total size of your student debt (occasionally they might ask).
Plus, student loans don’t work out like normal loans at all. With normal loans, you pay back a fixed amount each month. With student loans, what you pay back depends on what you earn. In fact, 75% of students can expect to have some of their debt written off. Statistically, most of you will never have to pay back the full amount.
Also, more often than not, graduates tend to have improved financial prospects. Which makes them more likely to be given the thumbs up from lenders when applying for a mortgage.
True or False? To look good to a mortgage lender you have to have no student debt
Also false! A lender is unlikely to reject your mortgage application just because you have student debt. Like we said above, they probably won’t know your total student loans debt.
But they do care about your monthly student loan repayments. How much you’re paying to Student Loans Company each month. You need to show you can afford to pay both your student loan plus your mortgage repayment each month.
So there is one way that your student debt can affect your mortgage. If you’re paying back a lot each month in student loans, it could reduce the amount of mortgage you get. If the bank decides you don’t have quite enough income to cover both of these payments comfortably.
What looks good to a lender? Meeting all your monthly payments. Earning a solid salary that leaves you with some disposable income. This gives you a healthy debt-to-income ratio which looks good.
True or False? Having student debt should put you off buying a home
False again! This one is a complete myth – you can absolutely still buy a home whilst you are in student debt. Millions of people do!
Having unpaid student loans should not prevent you from applying for a mortgage. You just want to make sure you’re applying for the right amount of mortgage – one that you can comfortably afford.
The most important factors when trying to get a mortgage are your income and your credit history.
The bank will look at whether you can afford the deposit amount, and what your income is. They’ll run a stress-test. To check you have enough money coming in to afford your monthly mortgage repayments if interest rates go up, or your salary goes down.
Lenders are also concerned with your credit history. If you have other types of debts, paying them off before applying for a mortgage gives you the best chance of approval.
Using a mortgage broker to advise you can be a huge help. They can get you in the best shape possible to make your application. They’re on your side and give impartial advice. So you can be confident in your mortgage application.
Hopefully this has reassured you that having student debt should not prevent you buying a house or a flat of your own. If you want to see when you can get on the property ladder and what you’ll need to save, use our free Homefinder tool.