Student loan debt doesn't have to affect your ability to get a mortgage loan if you make payments on time and explore student loan repayment options. Flickr photo.

Will student loan repayment  get in the way if you want to buy a house? Not if you’re on schedule to pay them off on time. Because they don’t yet understand how credit and lending works, a lot of graduates often get themselves into trouble by blowing off student loan payments. What they don’t get is that young people are responsible for building their credit history and a strong credit score.  The best way to start is with credit cards and student loans. Most young people would think making credit card payments on time is more important to a credit history than doing the same with a student loan. But with a credit score a debt is a debt, and debts must be paid.

Student loan repayment and  credit scores

Lenders divide debt into two categories: installment loans and revolving loans. Student loans, mortgages and car loans, which require you to pay a fixed amount each month, are installment loans. Your student loans do have an effect on your credit score, but it’s not always negative. When credit bureaus calculate credit scores, student loan debt is viewed more favorably than credit card debt. Owing a lot of money on installment loans is not going to hurt your credit score as much as maxing out your credit cards.

Debt-to-income ratio

When you find the house you want to buy and its time to apply for a mortgage loan, lenders don’t just look at how much money you owe and whether you make payments on time. In addition to your credit score, your income is a major part of the equation. This aspect of a credit score is called the debt-to-income ratio. A couple’s or individual’s debt, including the new house payment they are promising to make on time, every time, should not be more than 35 percent of their total income.

Preparing for a mortgage loan

Before you try to qualify for a mortgage loan, eliminate or minimize as much debt as possible. It’s probably not possible to pay off your student loan right away, so make sure the mortgage never interferes. Not paying your student loans could adversely affect your life and credit score for many years just as much as much as defaulting on a mortgage. Students have been given several options to aid them when they need help in the repayment process.

Student loan repayment options

In the interest of preventing a growing trend of student loan default, many student loan repayment options are available. A standard student loan repayment program is the normal schedule on a monthly payment basis. An extended repayment program can stretch to 25 years, but keep in mind that this approach increases the total amount of the interest over the life of the loan. Graduated student loan repayment programs begin with interest-only payments for borrowers who anticipate making increasing financial progress, which most graduates do. Payments increase along with interest over the life of the loan.

When the mortgage will have to wait

If you find yourself in real trouble when it comes to making your student loan payments, there are ways to solve the problem. However, they won’t help when it comes to applying for a mortgage. Many recent graduates who are having a hard time finding a job in the current economic climate opt for the income-sensitive repayment program. This program is for borrowers who do not earn enough to cover their loan payment. An arrangement is made for a payment between 4 percent and 25 percent for the first five years and again the interest increases over the life of the loan. As a last resort, you may want to consider a consolidation repayment option. It allows student loan borrowers to combine multiple loans into one, extend the repayment term and sometimes lower the payment.