Many graduates will find that within a few years or perhaps a decade of leaving university they will be thinking about getting a mortgage. However, most will not have repaid their student loan and so they will have this debt to consider when they are applying for a mortgage. They may worry that it will make it more difficult for them, but it is certainly possible to get a mortgage but you may need to be a little different in your application.
How a student loan is considered in your application
A student loan will be looked at in a different way by lenders compared with other loans. They will lend you a sum of money based on your income. This will be your income before tax. As loan repayments are taken out in your tax code, then this will make no difference when they are calculating how much to lend you. Therefore, you will be treated the same as any other applicant.
However, a lender ill also want to look at your general spending patterns. They will want to see bank statements and see that you are managing your money well and that there will be enough to be able to afford the loan repayments. Your salary will be slightly lowered by your loan repayments, if you are earning above the threshold to have to make those payments. This means that you will need to ensure that you are not overspending each month so that the lender can see that you are responsible enough to lend money to. You may have to budget tightly for a few months so that you do this, but if you are struggling, then it may be that having a mortgage could be a risky idea anyway.
Tips to improve your situation
There are a few things that all mortgage applicants can do to give them a better chance of having their application accepted. If you have an outstanding student loan then it is even more important to make sure that you do everything that you can to make your application as good as possible.
– Check credit report – our individual credit report has details of past and present credit agreements as well as details of direct debits to utility companies and things like this. It allows companies to see how good you are at paying what you owe. It is wise to check it regularly to make sure that it is correct. If there is information on it that is incorrect, it could lead to you being turned down for a mortgage when you actually would otherwise have had one. You can check it for free and therefore it is well worth doing to ensure that it is correct and obviously to get changes made if there are errors with it.
– Save up a big deposit – mortgage borrowers are expected to pay a lump sum up front towards the cost of their new home. The amount will vary with the lenders. A while ago you could get no deposit mortgages, but these days it hard to find these and you will be expected to produce at least 5% if not more of the value of the property. The more that you can save up, the more impressed the lender will be as it shows that you are responsible and capable of handling your finances well. Also, if you save up more of a deposit, you will not have to borrow as much money. This means that your repayments will be lower and more manageable, so you are more likely to get approval for the mortgage. It will also make the mortgage cheaper for you as you will be paying less interest as you owe less money. Therefore there are many advantages of this.
– Earn lots and spend very little – in order to make your recent bank statements look great then you need to have lots of income and not too much in the way of spending so the lender can see that you are capable of making mortgage repayments each month. They may want to look at three bank statements and so it is wise to spend the months before you apply making sure that your account is healthy. Therefore being very frugal with what you are spending as also trying to get as much income coming in as you can. this might mean doing some extra hours at work, finding other ways to earn as well as cutting back to only buying the essentials and comparing prices to make sure that you are not paying more than necessary. It can be tough doing this, but it can be worth it if you get the mortgage approved and the skills you learn from it can be very useful in case you get into a position where you need to be careful with money in the future.