How Student Loans Are Shaping Mortgage Approvals

August 5, 2014
Wall Street Journal 
mortgage lending news
Real-estate interests fret that today's astronomical amount of student debt will keep Millennials from buying homes, but data show that mortgage applicants with student loans are not being rejected any more frequently than those without them. Of nearly 46,000 applications for home purchases that processed since 2010 for first-time home buyers, more than three quarters were approved and funded.

The analysis also reveals, however, that even small changes in the size of an applicant’s monthly debt payments can influence whether financing is approved, with debt-to-income ratios above 43 percent creating greater risk of denial. LoanDepot data show that, so far this year, loan applications that were not funded reported almost $500 in monthly student loan payments, compared to about $300 in monthly payments on applications that were approved. "Between the approved universe and the denied universe, the [borrower's] credit is the same," explains LoanDepot CEO Anthony Hsieh. "The fundamental difference is a few hundred dollars in student loan debt that pushed the debt-to-income above the approved threshold."

Some housing analysts worry that young adults often do not realize how taking on thousands of dollars of student debt could hurt their ability to borrow later. Hsieh suggests that the mortgage industry study and develop more flexible underwriting guidelines that account for student loan debt.

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