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Does Having a Student Loan Affect a Mortgage Pre-Approval?

Learn how student loans affect your ability to get pre-approved and how you can qualify for a loan despite large loans.
Feb 01, 2023

Student loans can be an obstacle for many when pursuing their dream of buying their first home. Aside from having the debt that can pose a challenge in getting approved for a loan, paying down school loans can also cripple your ability to save for important things such as closing costs, down payments, etc.

However, there are several ways to decrease the impact of student loans and get yourself in a prime position to buy your first home. Read on to learn how student loans affect your mortgage application and buying power. 

How Student Loans Affect Buying a House

Student Loans Affect Your FICO Score

Having a stellar FICO score increases your chance of getting mortgage pre-approval, plus it helps you secure a loan with a favorable interest rate. Payment history accounts for 35% of your FICO score and is a major factor in your score’s calculation, and mortgage lenders like seeing borrowers with a history of on-time debt payments.

If you consistently pay your student loans on time, you’ll see a boost in your FICO score; however, a missed payment or defaulting on the loan will lower your credit score.

Student Loans Add to Your DTI Ratio

Your debt-to-income ratio is a calculation of how much you owe versus how much money you have coming into your household. Mortgage lenders use your DTI ratio to determine your eligibility. 

In most instances, you’re limited to a debt-to-income ratio of around 43%; however, the specifics vary per loan type. A huge student loan payment, plus other monthly expenses, can increase your DTI ratio, which may make getting pre-approved for a loan more challenging.

Student Loans Cripple Your Ability to Build Savings

Individuals with student loan payments may struggle to save enough cash for a down payment.

How to Purchase a Home with Student Loan Debt

  • Take out a 0% down payment loan: Veterans and active duty service members are eligible for VA loans, which are zero down payment mortgages. You can also take out a 0% down USDA loan if you want to purchase a home in a rural area.

  • Lower your debt-to-income ratio: You can decrease your DTI ratio by paying down some debt. Paying off debt gets rid of a recurring expense, plus it frees up more cash flow. You can pay off a different debt source if you don’t have the money to make an extra payment on your student loan bill.

  • Apply for down payment grants: If you’re a first-time homebuyer, you may apply for either local or national down payment assistance programs. The grants will cover part or all of your down payment.

Conclusion

You can still buy a home even with a student loan, but you may struggle to get pre-approved if you have too much debt overall. Unsure where you currently stand and want to get some real insight? Contact us today for a free and personalized consultation. 

 

✅ Benefits of Contract Loan Processing for VA Loans

  1. Specialized VA Knowledge

    • VA loans have unique requirements (COE, residual income, funding fee calculations, appraisal requirements).

    • A contract processor experienced in VA loans can spot potential issues early and streamline the process.

  2. Cost Savings for Lenders

    • No need to hire full-time staff; processors are paid per file.

    • Helps smaller brokerages or lenders manage fluctuating loan volumes without carrying extra payroll.

  3. Faster Turn Times

    • Contract processors often work remotely and are paid per closed file, so they’re incentivized to move loans quickly.

    • They can push COE requests, follow up on VA appraisals, and ensure VA-specific forms (26-1880, 26-8923) are completed on time.

  4. Compliance & Accuracy

    • VA has strict guidelines (e.g., allowable fees, seller concessions, and veteran protections).

    • A skilled processor reduces risk of compliance errors that could lead to loan buybacks or funding delays.

  5. Scalability

    • During high volume seasons (e.g., rate drops, PCS military moves), lenders can bring on extra processors quickly without long-term HR commitments.

  6. Reduced Loan Officer Burden

    • Lets LOs focus on originating, networking, and serving clients while the processor handles gathering DD-214s, income docs, pest inspection reports (if required), and underwriting conditions.

  7. Improved Borrower Experience

    • Veterans and active-duty borrowers often value clear communication and speed.

    • A processor who knows the VA process can anticipate documentation needs and prevent last-minute surprises.

👉 In short: Contract processors help lenders stay lean, compliant, and efficient, while ensuring veterans have a smoother experience.