“How does my student loan affect my ability to get a home loan from a bank? A student loan is good debt, isn’t it?” Lance lets us in on how your bank views those little (or not-so little) loans we love to forget about.
Having debt in general does not always negate your ability to receive a home loan. However, it will limit the amount you are able to borrow. If you currently have personal loans, car loans, hire purchases and so on, these can dramatically lower the amount you are able to borrow.
But not all debt is created equal and the banks see a key difference between picking up a lot of short-term “consumer” debt and a student loan. While both are a financial burden and require you to commit funds to pay them back, the student loan says to the lender that you are now reaping the benefits of that loan by working (possibly even in the same field you have spent three or more years studying). The student loan paints a trajectory of future employment and stability of income potential that banks look favourably upon.
So a student loan has some definite positives when compared to other debt like your hire purchase on that new BMW sitting in the driveway. However, there are still calculations to be made. If you have a student loan you will (should) be paying this back, and, simply put, these student loan repayments reduce the amount of money you have each week to put towards a mortgage repayment (e.g. if you have $100 per week after costs and $10 goes towards your student loan, you then only have $90 to put on your home loan). These calculations will reflect how much the bank will loan you.
Lance Shearman is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.