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I read the thread on what is considered when applying for a mortgage/getting preapproved. Does the amount of student loan you have affect your approval?
Everything in all 3 of your credit reports is considered and before closing, underwriting reviews it by hand with their eyeballs.
SL are installment tradelines. That and other installments that have routine monthly payments (auto, signature loans, etc) are used to calculate your DTI ratio (debt to income). This plus your expected mortgage payment cannot be too high. For example if you have debt payments that eat up way over 1/3 of your income, this can scare a lot of lenders off no matter what your credit scores are.
This also places a cap on the size of the mortgage when they figure up how much your mortgage payment will be in relation to your other debt. A conventional mortgage aims to put your total debt payments post-mortgage at a healthy level where you can easily afford to continue your current debt payments and carry the mortgage; that reduces the risk of default to the lender.
For example if you have SL debt of $50,000 and your payments are $400 a month for the life of the installment, and your gross monthly salary is $4,000... your DTI is 10% -- which is a fairly healthy level. That said, you would not be able to carry the payments on a $350,000 mortgage unless you put a whopping amount down on it in cash, but you should not have that much trouble getting a $175,000 mortgage. If your mortgage payments come out to $1,200 a month... then your total monthly debt payments come out to 40% of your take-home, leaving you 60% remaining for living expenses (utilities, food, clothing, transport, etc).
If you got SL debt showing, the LAST thing you want to also be showing are CC balances. I would not apply until you've cleared ALL your revolving debt. That just makes your DTI look worse and it will lower your qualifying mortgage size. When you are shopping for houses and looking at mortgage payments, you should shoot for CLOSE to what you are renting for right now.
If you're used to renting for $900 and your mortgage payments are estimated to be $1,500---this will be a huge shock to your budget not to mention it will be VERY tempting between renting and owning to run up the cards for all the expenses you accrue during the transition (movers, all the trips to Home Depot, etc). A safer guideline there would be no higher than a 20% increase in what you rent for presently.
If you want to be more conservative---if you are married or partnered, you should try to get the housing payment to fit on ONE person's income and avoid having your mortgage rest on the income of both of you (but you can still use both incomes to qualify for the loan). If there's any sudden change in lifestyle that reduces the chances of default and foreclosure... say one of you lose your job and goes on UI.
If you're aiming for a larger house and you own an existing one, you want to show as little debt as you possibly can---preferably zero, and if you're upsizing from a smaller house to a bigger house, you typically do not want to cash out on the sale of your existing mortgage as the lender will get big warm fuzzies if you roll the sale of the old house entirely into the new one; which is better for you in the long term since your payment will be as low as you can make it and you preserve the equity you were paying into in the previous home.
If you have a lot of equity already in a smaller property, it might be enough to get yourself into a 15-year mortgage that carries a much lower interest rate and gets you to to outright ownership quicker, even though the payment sizes are larger. The faster you accrue equity in the house, the easier it is to refinance in the future should you ever want to cut down the mortgage payment so you can keep more of your income.
Thank you so much for your advice! It definitely did shed some light on my future of buying a house... Some day SOON I hope I can buy a home. THANK YOU! BTW, what did you do to get your FICO to 801!? That's amazing! I'm shooting for 700 still! Almost there0 57 points away to be exact!!!!!!
If your loans are not in repayment for 12 months some lenders won't count it in your DTI. My lender didn't.
@payiavang wrote:Thank you so much for your advice! It definitely did shed some light on my future of buying a house... Some day SOON I hope I can buy a home. THANK YOU! BTW, what did you do to get your FICO to 801!? That's amazing! I'm shooting for 700 still! Almost there0 57 points away to be exact!!!!!!