Q: I am 30 years old have $40,000 in student loans. These loans are scheduled to be paid off in 20 years.

My wife and I have a combined gross income of $85,000. How long can I expect these loan to have a deleterious effect on my ability to obtain a mortgage on a home that would otherwise be within our price range?

A: The students loans will affect your ability to buy a home until they are repaid. What lenders do is simple math. A conventional lender will allow you to spend up to 36 percent of your gross monthly income on your total debt payments (mortgage, insurance and other debt).

In your case, you could spend 36 percent of $85,000, or $30,000 per year on your total debt payments. From this amount, they subtract all of your debt payments, including loan payments for school and auto loans, and credit cards debt, and then subtract real estate taxes and insurance. What’s left can be applied toward a home loan.

Certain FHA loans expand the debt-to-income ratio limits slightly, as do certain first-time buyer programs. But you’ll find 36 percent of your gross is about 50 percent or more of your take-home pay. If you want to be able to afford more, you will need to pay off your student loans.

Published: Mar 1, 2001