• <h4 class="dechead">On One Hand: Installment Debt with On-Time Payments Can Help

    Student loans are considered installment debt, one with a fixed monthly amount, rather than rotating debt like credit cards. Having a history of on-time payments towards the student loan may even help to increase the credit score. The credit score rating affects how easy it is to get a new home mortgage and also affects the mortgage rate offered.

    On the Other: Debt-to-Income Ratio Can Hurt

    Lenders evaluate new home loan candidates based on their debt-to-income ratio. The amount of debt in comparison to the total monthly gross income should not exceed 42 percent---the percent at which a candidate is still considered a "good" candidate to lend to. If the student loan is more than 42 percent of the monthly gross income, a candidate may find it more difficult to get a new home.

    Bottom Line

    Student loans are considered good debt, but any debt will be compared against the total monthly gross income to help determine how viable a candidate is for a new home loan. Those with student loans should pay down the loan aggressively to help increase their chances of getting a new mortgage at the best rate.


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