Canadian students pay an average of $6,693 in tuition for the 2021/2022 academic year. After graduation, those loans come due, and four years of education can amount to a significant amount that is paid off over a decade or more. Getting a mortgage with student loan debt is possible, but your debt-to-income ratio and mortgage affordability will be impacted by it.
The Debt-to-income ratio is the percentage of your gross monthly income that goes into making monthly debt payments and is used by lenders to determine your borrowing risk. It is determined by two key debt ratios: GDS (gross debt service ratio) and TDS (total debt service ratio). The GDS is the ratio of your income to the cost of your housing and is not typically affected by student loans, while the TDS represents the ratio of all debt service requirements, such as housing, credit card debt, and any loans. Most lenders will not let you get a mortgage with a TDS greater than 44 percent, and if your loan payments are too high or your income is too low, then you will not be able to qualify.
Student loan debt affects mortgage affordability, which is how much you can borrow based on your current income, debt, and living expenses. With student loans, your debt increases and affects your TDS, so you will likely be approved for a lower amount than you would without any student loan debt. Additionally, student loan debt affects your credit score, as it is reportable to the major credit bureaus in Canada. If you have not made regular payments or been late, your student loans will negatively impact your credit score and may hurt your chances of getting approved for a mortgage.
Getting a mortgage when you have student loan debt is very doable if you take the proper steps. These steps include paying off other debt, restructuring your student loan to extend payments over a longer period of time, making regular student loan payments, getting pre-approved, and getting a set mortgage amount and interest rate. Paying off other debt will improve your debt-to-income ratio and your ability to get a mortgage while taking care of them immediately will improve your mortgage affordability. Making regular payments will improve your credit score and help your chances of getting approved for a mortgage.
Student loans are an important factor in determining the eligibility of a potential mortgage borrower. With a good credit score, employment history, and minimal other debt, they will not impact the debt-to-income ratio or hinder the mortgage approval process.
