Student Loans And How They Affect Getting A Mortgage

First Home Buyers are often nervous about the size of their Student Loan and how it will affect their chance of getting a mortgage.

Rupert from Mortgage Lab explains the effect of a student loan and how much it really matters.

So, you’ve studied hard for many years and, to get there, you borrowed on your Student Loan.  For your courses, for your books, and for some money to live on.  Now you have a deposit for a house and a Student Loan of 4 times that!  How can you tell the bank your Student Loan is going to take you longer than your mortgage to pay off?

If you read our blogs often, you will know that people usually face one of two hurdles when getting a mortgage.  A Deposit Hurdle (you don’t have enough deposit) or an Income Hurdle (you don’t have enough income to cover all expenses).  

Student Loans reduce your income (the government takes out 12% of your salary once you earn more than $19,084 per year).  The banks simply take that amount off your income when they’re calculating how much you can afford.  Basically, a Student Loan makes it so you hit the Income Hurdle earlier.

As far as the amount of your loan goes, it actually doesn’t matter how much you owe.  The bank will reduce your income regardless.  This is great news for those of you with eye-watering Loans.  The calculation is the same whether you $3,000 or $300,000 remaining.  The bank simply doesn’t care.  They would care if you had a $300,000 Credit Card (obviously) but not a Student Loan.  Why?  Because your payments will always be 12% of your income and no more.  The government can’t call your loan in and the payments are made automatically.  It’s even interest-free, as long as you stay in the country.  It is as close to good debt as you can debt.

So don’t be embarrassed about the size of your loan.  We’ll adjust your income and work with it.

Further tip: If you are hitting the Income Hurdle and only have a small Student Loan left, consider paying off that Student Loan.  Sure, you’re paying off an Interest Free loan which isn’t awesome, but you’ll get a 12% income boost which might get you what you need.

THIS POST IS BROUGHT TO YOU BY MORTGAGE LAB, PARTNERING WITH THE FIRST HOME BUYER’S CLUB TO PROVIDE SPECIALIST ADVICE TO FIRST TIME BUYERS.  GET IN TOUCH WITH ONE OF THEIR EXPERIENCED ADVISORS VIA THE FORM BELOW TO GET YOURSELF ON THE RIGHT PATH.