Mark Mawby was kind enough to sit down with EveryHome and discuss how to afford a mortgage with student loan debt. Mark serves as the Vice President of Lending for Freedom Mortgage in Plymouth Meeting, PA and his team has helped countless EveryHome buyers effortlessly secure a mortgage.
There have been a lot of changes recently in how to calculate student loan payment, including how it may affect your ability to obtain a mortgage. One of the most important things to consider is your debt ratio.
To calculate debt ratio, your lender will add all of the expenses on your credit report as a monthly payment, including your student loans. This also includes any credit card debt, or car payments, but does not include things like your cell phone bill, gas, or electric. Your lender will then add your potential new monthly mortgage payment to this total, and these things combined, in general, cannot exceed 45% of your gross monthly income. In round numbers, for example, if you’re making $1000 per month, your monthly payments cannot exceed $450.
FHA tends to be the most flexible loan program for borrowers with student loan debt because they will allow a higher “debt ratio” than other loan programs. In some cases, there is an option to go to a 50 or 55% debt ratio on an FHA loan (as opposed to a conventional loan, where the limit is closer to 43 or 45%).
As a result of allowing this higher debt ratio, they may want to see compensating factors as a result. These compensating factors may include higher credit scores, using your own money as a down payment, rent history, and recently graduating (and being in an upwardly mobile position).
If you have multiple student loans, consolidating them into one fixed-rate loan may lower your monthly payment. Not only will this save you money, it may also help you to more easily afford a mortgage.
To learn more about qualifying for a mortgage or to discuss your specific situation, send Mark an email at Mark.Mawby@FreedomMortgage.com or give him a call at (215) 990-8580.