As a soon-to-be first time buyer, that’s trying to pay down student loans, how much debt can I have to qualify for a mortgage?

Question:

I’m 21 years old, and I recently graduated college, and I’m making about $55,000. I think I have decent growth potential for my income moving forward, but I have $155,000 in debt, $138,000 of which are student loans.

I know I’m still a bit out from being approved for a mortgage with all this debt, but my goal was to buy a home in four years. What I want to know is how much debt can I have and still be able to buy a home?

Answer:

So the banks are going to look at debt to income ratios when qualifying you for a mortgage, and different loan products have different debt to income ratios. For instance, conventional loans typically will allow as high as 50% debt to income ratios; whereas jumbo loans would require only 43%. Debt to income ratios are pretty much all of your expenses, including housing (aka your potential mortgage payment) divided by your gross monthly income.

We can illustrate this calculation with a hypothetical example:

You make $55,000 a year which is $4,583.33/month (we’ll use monthly amounts to make things easier).

Let’s assume your potential mortgage is $1,500 a month and you have $1,000 in other debt (including those student loans). So your monthly debt is $2,500

Your debt to income is 54.55%.

Granted, this number doesn’t really mean too much until you talk to a mortgage broker about which loan programs make sense for your scenario (purchase amount, down payment, credit score, etc). Only then you’ll be able to know how much debt you can have to qualify for the mortgage you want.

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