How Student Loans Impact Your Credit And Homebuying Power

If you have student loans, it can be harder to make the dream of homeownership a reality – especially in 2026.

As of May 2025, student loans in default have come due and collections on unpaid federal student loans have resumed, making the pandemic-era payment pause and interest freeze a thing of the past. According to the U.S. Department of Education, more than 40 million Americans carry student loan debt – and over 5 million are in default.

So, how much does a student loan affect your credit rating? The good news is that just because you have student loans doesn’t mean you can’t become a homeowner. Understanding how student loan debt impacts your credit rating and homebuying power is the first step toward purchasing a home.

Can I Buy A House With Student Loans?

Many student loan borrowers feel trapped by their debt. According to data from the Education Data Initiative, 51% of renters report that their student loan debt keeps them from affording to purchase a home. And a recent study from The Kaplan Group found that millennials and Gen Z have the lowest homeownership rates and the highest levels of student debt of any generation.

These figures might be depressing, but there is a silver lining: You really don’t need to be debt-free to qualify for a mortgage, and lenders don’t single out student loans when reviewing your debt.

When you apply for a home loan, the lender and underwriter will look at your whole financial picture. A strong credit rating, consistent loan payments and keeping your debt as low as possible can all improve your homeownership outlook – even if you carry student loan debt.

Can Student Loans Hurt My Credit?

A borrower’s credit score impacts not only their ability to secure a mortgage loan, but it also dictates the interest rate on the loan. Lenders typically require a minimum credit score of 620 for conventional loans; government-backed mortgages may accept scores as low as 500 – 580.

If you miss a student loan payment or your loan goes into default, you will get hit with penalties and fees – including interest – making the amount you owe larger than the original amount you took out for your college education.

When borrowers are delinquent for 90 days or more, their credit scores can drop fast. When your score is lower, you have less chance of qualifying for the mortgage you want. And the higher your credit score to begin with, the more points you lose. When many student loans went into default, borrowers’ credit scores plunged, impacting their ability to purchase a home.

If your loan is in default and you’re not ready to give up your homeownership aspirations, the best course of action is to avoid letting any more time pass without repaying your loans. Begin paying them back as soon as possible: Consistent on-time payments will eventually improve your credit rating and enhance your opportunity for homeownership. Always reach out to your student loan service provider if you’re having trouble repaying your loans.

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Why Do Student Loans Affect Buying A House?

First-time homebuyers with student loan debt spend an average of 39% less on their homes than buyers without student debt, according to data from the Education Data Initiative – meaning that buyers without student debt may have more homebuying power.

A lack of purchasing power means that when it comes time to buy a home, you may have to sacrifice on space and comfort to find an affordable option. If you want more homebuying power, you’ll need to find out how much your student loans are hurting your debt-to-income ratio (DTI).

Along with your credit score, your DTI is an important yardstick to measure whether or not you can afford a mortgage or how much money you can comfortably borrow. Your DTI ratio compares the amount of debt you owe to your gross monthly income.

Even if you have large amounts of student loan debt, the total amount matters less than your recurring monthly payment. It’s the latter amount that may determine your ability to get a mortgage loan – and how large of one. That’s because your DTI measures your financial fitness for repaying the loan. The higher your DTI, the less money you may be able to borrow, potentially making expensive homes out of reach.

How to calculate your DTI:

(Monthly debts/gross monthly income) x 100 = DTI ratio (percentage)

In short, your student loan debt may impact your borrowing power, which in turn limits the homes you can afford.

You’ll typically need a DTI of 50% or lower to be preapproved for a mortgage, but most lenders want to see a much lower ratio, or around 35% – and less is even better. When calculating your DTI, remember that you don’t need to include the full amount you owe on the loan, only the required minimum payments. For example, if you have $30,000 in total student loan debt but you pay $300 a month, you use the monthly figure in calculating your DTI.

A home affordability calculator can help you estimate your homebuying power, allowing you to start searching for homes within your price range. If your DTI is relatively low and you have a reliable income, you can go ahead and apply for a mortgage, even if you have student debt. However, if your student loans are in forbearance or deferment, you’ll need to bring them current.

Example of DTI

Here’s how a DTI might look for a student loan holder. Let’s say you have a total gross monthly income of $5,000.

Your monthly debts are as follows:

First, let’s add up your monthly debts. In this case, your total monthly debts would amount to $2,545. Divide $2,545 by $5,000 to get your DTI ratio, then multiply that number by 100. In this case, it’s 50.9% – too high to qualify for most mortgages.

If you need to, consider ways to lower your DTI, like paying more than the minimum balance or working a part-time job to pay off smaller debts, like a credit card balance.

How To Improve Your Mortgage Approval Odds

As mentioned, if you have a low DTI ratio, your student loans shouldn’t prohibit you from purchasing a home. If the amount of your student loan is standing in the way of your homebuying power – either by limiting the amount you can borrow or hindering your credit rating – there are ways to improve your situation.

Improve Your Credit Score

Repaying your student loans plays a role in your credit report. Here are a few ways to make sure they’re helping, not hurting, your mortgage chances:

Consistently managing your student loans shows lenders that you’re responsible with long-term debt, which can improve both your credit report and your mortgage approval odds.

Choose The Right Mortgage Loan

There are many types of mortgage loans, and if you have student loan debt, some may be more appealing than others. Options to consider include:

Increase Your Monthly Income

If you can increase your monthly income, you can put those funds toward paying down your debt to improve your DTI ratio. In addition, a higher monthly income (which must be recurring and constant) can also lower your DTI, making you a better mortgage loan candidate. If you can’t find ways to increase your income, consider using a trusted co-signer with strong credit and high income (like a parent or other family member), who may be able to help you secure a mortgage loan.

Consider Refinancing Your Federal And Private Student Loans

If you qualify for refinancing, you can get a lower interest rate on your loans and reduce your monthly payment. But don’t decide on this until after speaking to a student loan professional. When it comes to federal student loans and refinancing, you risk losing eligibility for federal student loan forgiveness plans or income-driven repayment. If you have private student loans, the risks don’t typically apply for a refinance.

In some cases, you could also consider consolidating your federal student loans to lower your monthly payment with a longer repayment term. In these cases, you’ll pay less each month, making your DTI lower even though you’ll live with your loans for a longer period.

Refinance Your Existing Mortgage And Roll In Your Student Loans

If you already own a home and have enough equity, you could use a cash-out refinance to pay off your student loan debt. You can get a lower interest rate on your new mortgage, even if your monthly payments go up. Just keep in mind that the risk associated with this option is potentially losing your home if you can’t pay your new mortgage payment.

If this option interests you, Fannie Mae offers a cash-out refinance program specifically designed for homeowners who hold student loans. You’ll need to meet a few conditions to qualify: Partial payoffs are not accepted, and you must have a minimum 80% loan-to-value ratio in your home. Fannie Mae cash-out refinances differ in that you don’t receive the cash directly; it goes straight to your student loan service provider toward your loans.

FAQ

The Bottom Line: Student Loans Don’t Have To Affect Homeownership

If you carry student loan balances, you may still qualify for a mortgage – it just might limit some of your options. Boosting your credit score and lowering your DTI ratio are two of the best ways to improve your mortgage approval odds.

There are steps you can take to lower the impact of your student loans – such as staying out of student loan default, paying down your other debts and increasing your income. Just because student loans can impact your homeownership opportunities doesn’t mean they will. Turning them into a manageable part of your financial profile means removing barriers to homeownership.

Ben Shapiro

Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.

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