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Can I Qualify for a Mortgage in California With Student Loan Debt?
Californians with student loan debt often wonder if they can qualify for a mortgage loan, on top of their existing debt. In many cases, this is totally doable, as long as the borrower has enough income to manage the monthly payments.
Here are five key points to take away from this guide:
- Having student loan debt doesn’t automatically disqualify you from getting a mortgage in California. So it’s best not to make assumptions. Instead, talk to a mortgage broker to find out where you stand.
- It’s not the existence of student loan debt that matters most but the total amount and how it compares to your income. Manageable debt loads are generally not a barrier to mortgage approval.
- Your student loan payment history impacts your credit score, which lenders use to evaluate risk. Timely payments can improve your credit score, while missed payments could lower it.
- Borrowers can review their credit scores and reports to understand their financial standing. Free credit reports are available annually at annualcreditreport.com.
- Some mortgage lenders offer flexible programs that accommodate borrowers with student loan debt, particularly those with strong credit or other compensating factors.
Have questions? If you’re in California, our team can assess your financial situation to see if you can qualify for a mortgage with existing student loan debt. So feel free to reach out!
Student Loans: A Big Burden in California and the U.S.
According to some sources, total student loan debt in the United States exceeds $1.5 trillion. (That’s “trillion” with a T.) A 2024 report from the Pew Research Center revealed how much debt the average borrower has.
According to the Pew Research report:
- One in four adults under 40 have student loan debt, compared to 14% of those aged 40-49 and only 4% of those 50 and older.
- The amount of debt varies significantly based on level of education.
- Borrowers with postgraduate degrees typically owe the most, with a median debt between $40,000 and $49,999. A quarter of these borrowers owe $100,000 or more.
As the report’s authors explained:
“Americans owe about $1.6 trillion in student loans as of June 2024 — 42% more than what they owed a decade earlier. The increase has come as greater shares of young U.S. adults go to college and as the cost of higher education increases.”
The takeaway: The rising cost of higher education has led to a significant increase in student loan debt, here in California and elsewhere across the U.S. It can also affect your ability to qualify for a mortgage loan.
Getting a Mortgage in California with Student Loan Debt
We know from experience that home buyers in California who carry student loan debt often wonder how it will affect their chances of getting a mortgage loan.
Here’s what you need to know. A home buyer who has a decent credit score and sufficient income could qualify for a home loan in California, even if they have a significant amount of student loan debt.
It mostly comes down to how (A) much debt you currently have across all of your accounts, and (B) how your income stacks up against it.
The takeaway: If your income is sufficient to cover the monthly mortgage payments, on top of your other recurring debts, there might not be any obstacles whatsoever.
How Lenders Evaluate Borrowers
When you apply for a home loan, the bank or mortgage lender will review your entire financial picture. They’ll pay particularly close attention to your current income and existing debts.
If you’re doing a good job managing your debts, and they don’t use up too much of your monthly income, you could still potentially qualify for mortgage loan in California.
To state it differently, student loan debt by itself will not necessarily disqualify you for a home loan. It’s the amount that matters most. An excessive amount of debt (relative to your income) could present problems.
But a more manageable debt load doesn’t necessarily prevent a person from qualifying for mortgage financing. In fact, it could even help in certain scenarios.
Student loan debt can affect you in several ways, when applying for a mortgage loan. It can impact everything from your credit score to your debt-to-income ratio. So let’s talk about those aspects next.
Credit Score Considerations
One way your student loan debt can affect you has to do with your credit score. These three-digit numbers are based on information found within your credit reports, which in turn are based on your financial activity.
Your payment history makes up the largest part of your credit score. The short version is this: repaying all of your debts on time can boost your credit score, while missing payments can lower it.
This is where student loan debt comes back into the picture.
When you apply for a mortgage loan in California, your lender will review your current debts. This will include any recurring balances you pay each month, for things like credit cards, auto and student loans, and other forms of debt.
If you’ve done a good job of repaying your student loan, it could actually have a positive effect on your credit score.
- A high score shows that you are a low-risk borrower, based on your previous borrowing habits. This could help you qualify for a mortgage loan.
- On the other hand, a person who regularly misses loan payments will end up with a lower credit score. This can hurt your chances of getting a mortgage loan in California.
Fortunately, you can check your credit scores yourself to see where you stand. You can also check your credit reports once per year, at no cost. The official website for obtaining your free credit reports is annualcreditreport.com.
Understanding the DTI Ratio
The amount of money you owe on your student loans can also affect your debt-to-income ratio. The DTI ratio is simply a comparison between the amount of money you earn via your income, and the amount you pay out each month toward your recurring debts.
The goal here is to ensure that you are not taking on too much additional debt, by using a mortgage loan to buy a house. That wouldn’t be in anyone’s best interest.
The DTI ratio includes things like credit card balances, car loans, student loans, and any other recurring debt that you pay on a monthly basis. If this ratio rises above a certain level or threshold, it could make it harder to qualify for a mortgage loan in California.
There is no hard-and-fast rule as to how much debt a person can have, because there are many compensating factors and circumstances. But generally speaking, a borrower with a debt ratio that exceeds 50% could have a harder time getting a home loan.
That number is not written in stone. Exceptions are sometimes made for borrowers who are otherwise well-qualified to take on a mortgage. But it’s something to consider. This is just one of the ways student loan debt can affect you when applying for a mortgage loan in California.
Let’s Explore Your Financing Options
Located in the San Francisco Bay Area, Bridgepoint Funding serves borrowers all across the Golden State. We work with various lenders, in order to offer a broad range of financing options to our customers. Some of those programs are fairly flexible, when it comes to credit scores and debt-related issues.
Please contact us if you would like to find out if you qualify for a mortgage loan in California with your existing student loan debt. Our knowledgeable loan officers can review your financial situation and let you know where you stand, in terms of financing.
