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How will consolidating old student loans impact mortgage scores?

jrands
Contributor

How will consolidating old student loans impact mortgage scores?

Thinking of consolidating some student loans that are 10+yrs old and wondering how it might impact my mortgage scores. There would be about 5 accounts that I'd consolidate.

Message 1 of 8
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LaHossBoss
Valued Contributor

Re: How will consolidating old student loans impact mortgage scores?


@jrands wrote:

Thinking of consolidating some student loans that are 10+yrs old and wondering how it might impact my mortgage scores. There would be about 5 accounts that I'd consolidate.


It creates a brand new account at 100% utilization (not sure what you are at now) and mortgage scores do not like new accounts. It is generally recommended to not apply for new accounts within a year of applying for a mortgage.

 

Is there a specific reason you are consolidating? Lower interest? That would be the only reason I would consolidate. Maybe if it puts you in a repayment plan that requires consolidating to qualify that will lead to some of the balance being forgiven or something like that.




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Message 2 of 8
jrands
Contributor

Re: How will consolidating old student loans impact mortgage scores?


@LaHossBoss wrote:

@jrands wrote:

Thinking of consolidating some student loans that are 10+yrs old and wondering how it might impact my mortgage scores. There would be about 5 accounts that I'd consolidate.


It creates a brand new account at 100% utilization (not sure what you are at now) and mortgage scores do not like new accounts. It is generally recommended to not apply for new accounts within a year of applying for a mortgage.

 

Is there a specific reason you are consolidating? Lower interest? That would be the only reason I would consolidate. Maybe if it puts you in a repayment plan that requires consolidating to qualify that will lead to some of the balance being forgiven or something like that.


Primary reason is lower interest rate.

Message 3 of 8
calyx
Super Contributor

Re: How will consolidating old student loans impact mortgage scores?


@jrands wrote:

@LaHossBoss wrote:

@jrands wrote:

Thinking of consolidating some student loans that are 10+yrs old and wondering how it might impact my mortgage scores. There would be about 5 accounts that I'd consolidate.


It creates a brand new account at 100% utilization (not sure what you are at now) and mortgage scores do not like new accounts. It is generally recommended to not apply for new accounts within a year of applying for a mortgage.

 

Is there a specific reason you are consolidating? Lower interest? That would be the only reason I would consolidate. Maybe if it puts you in a repayment plan that requires consolidating to qualify that will lead to some of the balance being forgiven or something like that.


Primary reason is lower interest rate.


Is this a private lender?   Federal consolidation uses a weighted average so the lower rate isn't really all that much lower unless you are going to pay at an accelerated rate.

 

And yes, mortgage scores really don't like new accounts - if you are looking at getting a mortgage (or refi), Wait until that's complete before consolidating.


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Message 4 of 8
ImTheDevil
Community Leader
Super Contributor

Re: How will consolidating old student loans impact mortgage scores?

@jrands definitely listen to these ladies' advice. They are on point.



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Message 5 of 8
jrands
Contributor

Re: How will consolidating old student loans impact mortgage scores?


@calyx wrote:

@jrands wrote:

@LaHossBoss wrote:

@jrands wrote:

Thinking of consolidating some student loans that are 10+yrs old and wondering how it might impact my mortgage scores. There would be about 5 accounts that I'd consolidate.


It creates a brand new account at 100% utilization (not sure what you are at now) and mortgage scores do not like new accounts. It is generally recommended to not apply for new accounts within a year of applying for a mortgage.

 

Is there a specific reason you are consolidating? Lower interest? That would be the only reason I would consolidate. Maybe if it puts you in a repayment plan that requires consolidating to qualify that will lead to some of the balance being forgiven or something like that.


Primary reason is lower interest rate.


Is this a private lender?   Federal consolidation uses a weighted average so the lower rate isn't really all that much lower unless you are going to pay at an accelerated rate.

 

And yes, mortgage scores really don't like new accounts - if you are looking at getting a mortgage (or refi), Wait until that's complete before consolidating.


Yes, it's private. The benefits would be lower interest, payoff faster since I'd continue to make the same total payments, flexibility of having a lower payment, and improve my overall DTI. I have been looking for housing. I'm currently pre-approved and have been looking for the last 6 months now. However, who knows when housing will happen as the market is pretty crazy and I haven't come close to any of my bids. So while I would like to get a home, I don't want it to prevent me from passing up other financial opportunities as well because again, who knows when and if I'll end up buying a home in this market. This is the conundrum...

Message 6 of 8
aj2121
Contributor

Re: How will consolidating old student loans impact mortgage scores?

How much of your current student loans do you have paid off? If they are less than 10% paid off you won't see much of a score change, maybe none at all. The real score boost comes from when your installment loans are paid down below 10%, you will notice some score change at different thresholds above that but those tend to be minimal. If refinancing your student loans puts you in a better position financially, then do it. Also, a lower minimum payment on those loans will lower your DTI and could potentially help your mortgage approval more than the few points you would lose. If you were immediately purchasing a house, I would say wait and refinance after the home purchase. If you are still 6+ months away, then do the refinance now.

FICO8 as of 4/9/21:
Message 7 of 8
jrands
Contributor

Re: How will consolidating old student loans impact mortgage scores?


@aj2121 wrote:

How much of your current student loans do you have paid off? If they are less than 10% paid off you won't see much of a score change, maybe none at all. The real score boost comes from when your installment loans are paid down below 10%, you will notice some score change at different thresholds above that but those tend to be minimal. If refinancing your student loans puts you in a better position financially, then do it. Also, a lower minimum payment on those loans will lower your DTI and could potentially help your mortgage approval more than the few points you would lose. If you were immediately purchasing a house, I would say wait and refinance after the home purchase. If you are still 6+ months away, then do the refinance now.


Thanks for the reply. The loans I'd be consolidating are all more than 10% paid off, though I don't recall exactly how much for each. I've been preapproved already, though have gotten another round of preapprovals because I've been actively searching for 6 months now. I've also placed offers on several homes already, but lost out on all of them. It's been a tough market. One conundrum I'm in is whether to increase my budget for a home because home prices keep raising, or to stick to my original budget, but end up in a house that's not in a good part of town, or in a home that would need a lot of work. I've already relented and gone from finding a "dream" 3br and 2ba house to being okay with settling on a 2br and 1ba home. Anyway, I'm digressing now...lol The main point is that I'm ready to buy a home now, but don't know when it'll happen. I could get lucky and it can happen tomorrow, or it could be 6 months to a year from now with how the market has been. Have thought about a new build home, and if I did, it'd be at least 5-6 months before closing, which would provide some buffer potentially.

Message 8 of 8
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