Can I still get a home equity loan if I have student loans?

Student loans don’t have to stop you from reaching life’s goals. It’s perfectly normal (and very common) to be a homeowner still paying down student loans. Having student loans doesn’t automatically disqualify you from borrowing with a home equity loan.

Lenders understand that most people carry some form of debt. What matters is demonstrating that you can manage your finances, even with a new loan. If you meet the lender’s requirements, it’s possible to access your home equity to fund home improvements, consolidate more expensive debt, or cover another major expense. Here’s how it works.

Can you qualify for a home equity loan with student loans?

Yes, it’s possible to qualify for a home equity loan with student loans. Many people with outstanding debt, including student loans, qualify for a home equity loan. Home equity loans are a popular tool for covering all sorts of large expenses.

What do lenders consider when you already have student loans?

If you have student loans and want to apply for a home equity loan, we’ll walk you through the considerations lenders typically weigh. Here are some factors your lender is likely to consider as part of the approval process: 

Debt-to-income ratio (DTI) 

Debt isn’t an automatic deal-breaker. But if you have significant debt, lenders may be wary of approving you for a new loan. They’ll want to look at how much of your income you currently spend on housing and minimum debt payments. 

Your debt-to-income ratio (DTI) is a primary factor in the home equity loan application process. It shows how much of your monthly income (before taxes) goes to housing and debt. If you’re applying for a loan, a lower DTI is more favorable.

If you have a high DTI, that could mean that your budget is already stretched and it might be hard to take on a new loan payment. That’s why it’s more challenging to qualify for a home equity loan with a high DTI. 

An ideal DTI is below 43%. A 43% or lower DTI is acceptable to most lenders. But you can apply even if your DTI is higher. It’s possible to get a home equity loan with a DTI of 50%. 

Credit score and credit history

Lenders will check your credit score and credit history when you apply for a new home equity loan. Your credit history tells lenders how you’ve handled credit accounts in the past, and your credit score tells lenders how likely it is that you’ll repay your loan. 

Credit reports that show a history of on-time payments and many years’ experience with credit accounts may give you better approval odds. A good credit score not only tells lenders you’re a lower risk, it could open the door to a cheaper loan. Lenders typically offer lower interest rates to borrowers with higher scores.

Many lenders’ home equity loan requirements include a credit score of at least 620-640. Don't give up hope if your credit score isn’t there yet. It’s easy to check your credit score for free through your bank or credit card issuer, or on a free credit score website. Those sources typically also tell you the factors influencing your score. That helps you know which factors to work on for improvement. Credit scores aren’t permanent. Even small changes could boost your credit standing over time.

Will student loan debt make it harder to qualify for a home equity loan?

Student loan debt isn’t treated differently than any other kind of debt. Having a student loan won't necessarily make qualifying for a home equity loan harder. Many people have debt, and student loan debt is a common type of debt to have. 

If you spend more than half of your income on housing and debt payments, qualifying could be harder. 

How do lenders calculate your student loan payments for DTI?

Calculate your DTI by adding up your monthly minimum debt payments and your housing payment. If you’re a homeowner, housing includes your mortgage principal and interest payment, property taxes, homeowners insurance, and homeowners association dues. If you rent, it’s just rent. Don’t include utilities or other household bills.

Divide the total by your monthly gross income and multiply the result by 100 to express it as a percentage. 

Lenders will rely on the student loan payment amounts listed on your credit report. If your student loan payment amounts aren’t listed, lenders will estimate your monthly payment amounts using the outstanding loan balances listed on your credit report. 

Should you use a home equity loan to pay off student loans?

Whether you should use a home equity loan to pay off your student loans depends on a few factors:

• The interest rates on the loans in question

• How much money you think you’ll earn in the future

• Whether you have federal or private student loans

If your home equity loan comes with a lower interest rate than your private student loans, consolidating with a home equity loan may be a good option. If your private student loan interest rates are lower than the rates you qualify for with a home equity loan, it wouldn’t make sense. 

If you have federal student loans, paying them off with any kind of non-federal loan will cause you to lose all the benefits that come with federal student loans. That includes income based repayment plans, the ability to pause payments under certain circumstances, and the potential for debt forgiveness in the future. Before you consider a home equity loan for debt consolidation, think about whether you’ll ever need to take advantage ‌of federal student loan benefits in the future. 

Should you use a home equity loan to pay off credit cards? 

It could be helpful to use a home equity loan to pay off debt, like high-interest credit card debt. Achieve Loans offers a fixed-rate home equity line of credit (HELOC). On a fixed-rate loan, your interest rate won’t change. That means that during repayment, your regular monthly payment amount won’t change.

Before applying, ensure you understand how a home equity loan works and consider the pros and cons. 

An important consideration is that home equity loans are secured by your home. In other words, if you don’t repay the debt you could lose your home. If you’re already struggling to pay your credit card debt or student loan debt, you might not want to consolidate with a home equity loan. 

What’s next?

Qualifying for a home equity loan with student loans is possible. Here are some next steps to take:

• Find out how much equity you have. One way to ballpark how much you could borrow with a home equity loan is to compare your home’s current value to the amount you still owe on your mortgage. You can use a HELOC calculator to estimate how much of your home equity you might be able to borrow against. 

• Estimate your DTI. Use an online DTI calculator, or do the math yourself. Knowing your DTI could help you understand how much of a new loan payment you can afford. 

Find out if you pre-qualify for a home equity loan from Achieve Loans without risk to your credit score.