Dear Liz: I recently completed a master’s degree in counseling and am now paying student loans. I am punctual and consistent in my payments. How does having a $30,000 outstanding student loan look to home lenders? We recently sold our home and are planning to purchase another.
Answer: Student loans are installment loans that typically have a positive effect on your credit scores, but your payments on these loans may affect the size of the mortgage you can get.
Many lenders these days have returned to traditional lending standards and don’t like to see total debt payments exceed a certain portion of your income (typically 36%, though some go as high as 43%). If the minimum payments on your loans and the mortgage on your desired home would push you over the lender’s limit, you may need to consider alternatives, such as a cheaper house.
That’s probably a smart course anyway, since taking on too much debt can make it tough to meet your other goals. A big mortgage, plus all the related costs of homeowning, could prevent you from saving enough for retirement, emergencies or fun stuff, like vacations.
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