Applying for a mortgage can be tricky, especially when you’re in any kind of financial debt. Many of us leave university having borrowed tens of thousands of pounds, which will take a very long time to pay off.
If this was a normal loan, the chances are that it would have a very damaging impact on your mortgage chances, but a student loan is a little different. Student loans are viewed differently by lenders, and you stand a good chance of getting accepted with a student loan.
Can you get a mortgage with a student loan?
In short, you can get a mortgage with a student loan. If you’re above the repayment threshold, your student loan repayments will be considered alongside all your in’s and outgoings when a lender is assessing your suitability for a mortgage.
Effectively, when applying for a mortgage, student loans have the same impact as any other monthly outgoing you have. The lender will simply view the repayments as a monthly expenditure, and not necessarily as a severe debt.
Do you have to declare a student loan on a mortgage application?
Yes, you should declare a student loan on a mortgage application every time, no matter the mortgage type. Withholding this information is actually mortgage fraud, which could land you in a lot of trouble.
Also, declaring the student loan works in your favour, because it enables lenders to fully understand your financial situation, so they can give you an offer that you can actually afford to pay for.
Does a student loan affect a mortgage application?
A student loan only affects a mortgage application in the sense that repayments are viewed as a monthly outgoing. A student debt won’t negatively affect credit, because repayments are based on earnings, and they won’t be reported to credit agencies.
The only way in which a student loan can affect your application is simply by impacting on your debt to income ratio. Every outgoing will have a negative impact on your debt to income ratio, but student loan repayments are usually relatively low amounts, so only have a small impact.
Former students often also have an overdraft to deal with, so check out our blog ‘does an overdraft affect a mortgage application?’ for more support on this.
How does a student loan impact what you can borrow on a mortgage?
A student loan impacts what you can borrow on a mortgage, depending on your repayment rate. Regular repayments decrease your disposable income, but only by a little bit.
Your repayment rate is directly affected by how much you earn, so if you only earn a little bit above the repayment threshold, you’ll only repay a little bit. Equally, if you earn quite a bit over the threshold, your repayments will be higher. However, considering repayment rates are relative to income, the impact of the rate is usually likely to be minor on what you can borrow.
Different lenders also view student loans differently, so shop around to find the right one, or let a mortgage broker like Barlow Irvin find the best suited lender for you!
Should you overpay a student loan to help get a mortgage?
No, you don’t need to overpay on your student loan to help get a mortgage. You need to remember that lenders won’t be looking at the size of the loan itself, rather at the monthly repayments you’re committed to.
Based on that information, it almost always makes sense to pay the lowest required amount monthly, because that’s how to get the lowest possible monthly outgoings.
How much deposit do you need for a mortgage if you have a student loan?
Having a student loan generally won’t change the deposit amount you need. So you should aim to save the standard 5%-10% for a deposit. Of course, deposit fees vary from lender to lender, so it’s important to speak to a specialist financial advisor to find the best possible deal.
Many applicants with a student loan are also first time buyers. If you are, check out our first time buyers guide.
Do student loans affect your credit score when getting a mortgage?
No, student loans won’t affect your credit score when getting a mortgage. Mortgage credit checks will check for missed payments, IVAs, debts, bankruptcy, and more. However, student loans are not regarded as a ‘debt’ in the same way that most loans are, so they won’t negatively impact your credit score.
How a mortgage broker can help you get a mortgage with student debt
If you’re a former student managing loan repayments and you’re also looking for a mortgage, a broker can help you optimise your application before you make it, giving you the best possible chance for success.
If you’d like to speak to a professional about your income, outgoings and existing debts, and how they might impact your mortgage application, be sure to contact the dedicated team at Barlow Irvin today.