When you apply for a mortgage, lenders don't just look at how much you owe, your income is also a large factor. A couple's or individual's debt, including the new house payment, should not be more than 35% of the gross income. Lenders look at your credit score and the debt that is owed.
Lenders divide debt into two categories; installment loans and revolving loans. Student loans, mortgages and care loans, which require you to pay a fixed amount each month, are considered on the installment side. Your student loans do have an effect, but not negative.
When credit scores are calculated, student debt is viewed more favorably than credit card debt. Owing a lot of money in installment debt is not going to hurt your credit score as much as maxing out your credit cards.
Many young adults often get themselves into trouble by blowing off their student loans. New graduates usually build their credit history based on credit cards and student loans. That is why it is so important to make all of your payments on time.
Before you take on a mortgage, eliminate as many other financial commitments as you can. Pay down or even payoff car loans and any other debts possible. Not paying your student loans will adversely affect your lives and credit for many years.
Students have been given several options to aid them when they need help in the repayment process. We'll begin from the start and move down.
The standard repayment program is the normal schedule on a monthly payment basis. Next is the extended repayment program which can stretch to 25 years and increases the total amount of the interest over the life of the loan.
The graduated repayment program begins with interest-only for borrowers who anticipate making increasing financial progress, with increased payments and the interest also increases over the life of the loan. Income-Sensitive repayment program is for borrowers who do not earn enough to cover their loan payment. An arrangement is made for a payment between 4% and 25% for the first five years and again the interest increases over the life of the loan.
The last is the consolidation repayment option. It allows borrowers to combine multiple loans into one, extend the repayment term and sometimes lowers the payment. There are ways to help you out when you are in trouble with repaying your student loans, however, these do not help when it comes to applying for a mortgage.
