Can You Roll Student Loans Into a Mortgage?
Yes, it is possible to roll your student loans into a mortgage — assuming you have enough home equity. Combining these debts into a single monthly payment can simplify your finances and help make your debts more manageable.
Now that you know combining your student loans and mortgage is doable, you’re probably wondering if it’s the right option for you. Below, we’ll cover what you need to know (including the benefits, drawbacks and alternatives), to help you make an informed decision.
Key takeaways
- The average federal student loan balance is nearly $38,000 per borrower.
- Rolling student loans into your mortgage is often done with a cash-out refinance.
- Other options for student loan debt consolidation include HELOCs and home equity loans.
How does rolling student loans into a mortgage work?
The most common way to roll student loans into a mortgage is through refinancing, since this allows you to tap your home equity without selling your property.
What is home equity?
Home equity is the difference between what your home is worth and what you owe on it. For example, if your home’s value is $300,000 and your outstanding mortgage balance is $200,000, your equity is $100,000 ($300,000 – $200,000).
Generally speaking, the more equity you have, the more cash you can access for other financial goals like debt consolidation — which might include paying off student loans. You can accomplish this through a cash-out refinance, which involves replacing your current mortgage with a larger loan and pocketing the cash difference.
The amount you can get from a cash-out refinance depends on various factors, including your loan program and available equity. Most cash-out refinance lenders set an 80% loan-to-value (LTV) ratio limit, meaning you can’t borrow more than 80% of your home’s value. If you take out a VA cash-out refinance, you can borrow up to 90% of your home’s value.
See how much cash you can get with our cash-out refinance calculator.
Can you get a mortgage with student loan debt?
You can still get a mortgage loan even if you have student loan debt, though it may be a bit more challenging. This is because your student loan payments affect your debt-to-income (DTI) ratio, a key factor lenders consider when determining your loan eligibility.
Your DTI ratio represents the portion of your monthly income that goes toward debt payments, and most lenders prefer a DTI below 43%. Additional factors that can impact your eligibility include your income, assets and credit score.
4 steps to roll your student loan debt into a mortgage
- Compare loans. Do some research on your loan options, including cash-out refinance and home equity loans. Consider the interest rate, term and fees, and how they measure up to your current loan. Once you’ve compared a few different options, choose the one that’s right for you.
- Gather your documents. You’ll need to prepare documentation that shows the lender you can handle a higher mortgage payment. This may include recent tax returns and pay stubs, as well as details about your current debts.
- Apply for the loan and close. Submit your application with your chosen lender. If you’re approved, you’ll continue through the loan closing process, which will involve getting an appraisal and paying closing costs.
- Pay off your student loans. After you close on the new loan, the lender will either disburse the funds to you or send the funds directly to your student loan servicer. Remember that while rolling your student loans into your mortgage eliminates your student loan payment, it increases your mortgage balance and monthly payment — along with your overall interest costs.
Pros and cons of rolling your student loans into a mortgage
| Pros | Cons |
|---|---|
| Your interest rate will be lower than most student loan rates. Mortgage rates are typically lower than student loan rates, so consolidating can reduce your costs. You may lower your total monthly payments. Rolling your student loans into your mortgage may result in lower overall monthly payments, adding some breathing room in your budget. You won’t have to remember multiple due dates. By combining your debts, your due dates will be easier to keep track of and manage. | You’ll make less profit when you sell your home. Using home equity to pay off your student loans could mean less money in your pocket when it’s time to sell. You could lose your home to foreclosure if you can’t afford your payments. By rolling your student loans into your mortgage, you risk foreclosure if you’re unable to make the payments. You’ll lose the ability to defer loan balances if you decide to go back to school. When you roll federal student loan debt into your mortgage, you forfeit the right to certain borrower protections, including the ability to defer your student loan payments if you go back to school. |
Should you roll your student loans into your mortgage?
Whether you should roll your student loan debt into a mortgage will depend on your financial situation and goals. Here are some questions you’ll want to answer before choosing to consolidate your student loans:
- What would my new mortgage rate be?
- What would my new monthly payment and loan term be?
- How much cash could I get from refinancing, and would it be enough to pay off all my student loan debt?
- Can I afford the higher monthly payment?
- Will I face a prepayment penalty on my current mortgage if I refinance now?
- How much will it cost to refinance my mortgage?
- What refinance requirements do I need to meet?
Ready to compare refinance offers? Get Your Best Rates from Top Lenders TodayAlternatives to rolling your student loans into a mortgage
- HELOC or home equity loan. If you want to use your home equity to pay off your student loan debt but don’t want to refinance, consider a home equity line of credit (HELOC) or home equity loan. These options are also known as “second mortgages” and require a separate monthly payment (in addition to your current mortgage payment).
- Apply for student loan forgiveness. In some cases, you can have your federal student loans discharged. For example, if you work for a nonprofit or governmental organization, you may qualify for public service loan forgiveness after a specific period of qualifying payments. Visit the U.S. Department of Education website for more details.
- Consider student loan refinancing. Another option is refinancing your student loans to get a lower interest rate or monthly payment through a federal student loan servicer or private lender. However, if you’re refinancing your federal student loans, know that you could lose certain borrower protections, including access to income-driven repayment programs and forbearance options. In addition, keep in mind that some lenders will charge loan origination fees.
- Explore employer repayment assistance. Some companies offer student loan repayment assistance as an employee benefit. Eligibility for these programs varies by employer, so a good place to start is your employee handbook or human resources department. For example, some companies may offer assistance right away, while others require a certain period of employment, such as one or two years.
- Create a debt pay-off plan. If debt consolidation isn’t in the cards for you, consider developing a plan to repay your student loans faster. The key to a debt pay-off plan is prioritization. For instance, you may want to focus on repaying private student loan debt first, since private loans typically have higher interest rates and fewer borrower protections than federal student loans.