This article addresses a common concern among first-time homebuyers: whether student loans significantly impact mortgage approval chances.
The Good News
Student loans typically have a smaller impact than borrowers expect. Banks assess student loans differently than other debts because repayment is fixed at 12% of income (once earnings exceed the threshold of $24,128 for the 2025-26 tax year), rather than based on the outstanding balance.
Loan Balance Doesn't Matter
Whether someone owes $3,000 or $300,000 in student loans, the bank's calculation remains identical-only the income percentage matters. This contrasts sharply with credit cards, where lenders assess 3% of the credit limit regardless of actual balance.
Strategic Considerations
The article distinguishes between two common mortgage obstacles:
Paying off a small student loan might help only if it pushes borrowers past an income threshold without reducing their deposit below the 10% minimum requirement.
Debt Comparison
Credit card debt is far more damaging-even if the balances are the same. A $5,000 credit card costs approximately $150 monthly in affordability assessments, versus $500 monthly for equivalent student loan debt based on a $70,000 income-yet interest rates make credit cards riskier overall.
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