Ask Money

How can I get a mortgage with crazy student debt?

Marketplace Staff Jul 12, 2013

Question:

I graduated from law school two years ago with more than $150k in student debt, all government loans. I work in legal aid, which I love, and plan to take advantage of loan forgiveness after ten years. I currently make loan payments based on my income of ~$40k. I’m saving to buy a house in the next few years, but I am worried that with my debt-to-income ratio, I won’t be able to get a mortgage or if I do, the terms will be awful. What are my options? Will any mortgage provider take into account the loan forgiveness program I quailify for?

Response:

Carmen Wong Ulrich Jul 12, 2013 Former Host
It’s fantastic that you’re working in the public sector and know of the loan forgiveness programs.  For readers, here’s where you can find out more if you qualify.

And here’s the part I’m not so happy about:  Your chances of getting a mortgage on your own until that loan is forgiven.  Your debt is huge and your income is very small.  I’m assuming that your budget in terms of how much home you’re looking to buy is fairly small but any lender is going to look down the barrel of six-figures of debt and squirm with discomfort.  Even if someone comes in to put a down payment down for you (like a parent), it’s the risk of you taking on a mortgage on a low salary with mega-debt payments idling right beside you.

Your options are:  Either wait until the ten year period is over and buy a home after your loan is forgiven.  Or, have someone buy the home or co-sign with you.  I’d rather you not if only because when someone takes on a debt with you, it means a big risk to their finances and ability to borrow on their own.  Of course a lot of this depends on how much home you’re talking about.  If your budget is small and manageable, consider researching loans through the Federal Housing Administration.  As these loans are federally backed, they are the most likely to understand your position on getting close to loan forgiveness.  But, there is no guarantee that you’ll keep your job and qualify for forgiveness.  You may need to wait but lots can happen in a couple of years.  Good luck!

 

 

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