Does having a student loan affect a mortgage pre-approval?

3 MIN READ February 10, 2021
Getting into your first home can be both a challenging and exciting time. You’ve been saving hard, and now it’s time to get a mortgage pre-approval sorted so you know exactly what you have to work with.

You don’t have any credit card debt, and your finances are looking pretty good. But you do have a pretty big student loan – will this affect your chances of getting pre-approved?

The short answer here is that it depends on what your situation is. If you have saved up a decent deposit and you’ve got enough income to pay off both your student loan and your future mortgage repayments, then it likely won’t be an issue at all.

This is because the payments you make on your student loan will always be 12% of your income, regardless of how much you owe. If the lender can look at your income and be satisfied that you have enough to service a mortgage after your student loan repayments, you’ll be good to go.

If you’ve managed to save up a deposit but your income isn’t quite enough to service your student loan as well as a mortgage, this might be a bit of a roadblock. If your student loan is fairly small, paying that off first before you apply for a pre-approval might be the way to go.

Although they are a source of debt, student loans are closer to what is considered ‘good debt’ because (if you stay in New Zealand) they don’t accrue any interest. It’s also generally considered that once you receive a qualification, you’ll increase your earning potential.

Credit card debt is quite a bit different and will likely have a bigger effect on your chances of getting a home loan pre-approval. This is because the lender or bank takes into account the maximum amount you could potentially owe on your card – your credit limit – even if you don’t actually spend that amount.

So for example, if you have a $10,000 limit on your credit card, but you’re only spending around $1,000 on it each month, the bank will still consider the $10,000 as the amount that you wouldn’t be able to put towards a mortgage.

If you’re looking to get a pre-approval sorted soon, it pays to speak with a mortgage adviser first – they can give you advice on what the best move is for your situation, and give you tips on what the banks and lenders look for. We’ve got a fantastic mortgage team here at Haven so get in touch with us today!


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