Do Parent PLUS Loans Affect Getting a Morgage? Yes, Here’s How (2024)

Table of Contents

How Parent PLUS Loans Are Included In Your DTI An Example of How Parent PLUS Loans Affect DTI Parent PLUS Loans and the 43% Rule How Excluding Parent PLUS Loans from Your DTI Calculation Affects Your Mortgage Eligibility

Yes, Parent PLUS Loans do influence your debt-to-income ratio (DTI). When a parent borrows a Parent PLUS Loan to fund their child’s education, this new debt is factored into their DTI. Importantly, this effect is only for the borrowing parent – the other parent and the child are not impacted, and their credit scores remain unaffected.

How Parent PLUS Loans Are Included In Your DTI

As with all types of loans, the repayments for Parent PLUS Loans are factored into your DTI. When mortgage lenders assess your ability to repay, they will account for these loans in your overall debt portfolio.

An Example of How Parent PLUS Loans Affect DTI

Assume you have a gross monthly income of $7,000 and the following monthly debt payments:

Mortgage loan: $2,000
Parent PLUS Loan: $800
Auto loan: $500
Credit cards: $200
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These payments culminate in a total monthly debt of $3,500, creating a DTI of around 50%. This percentage is a critical threshold for mortgage qualification — let’s dig into why.

Parent PLUS Loans and the 43% Rule

Why are we focused on this 43% rule for DTI? Here are the key points:

A 43% DTI is the highest ratio a borrower can have to still qualify for a mortgage.
Lenders ideally prefer a DTI lower than 36%.
No more than 28% of your debt should be allocated to servicing a mortgage or rent payment.
The lower your DTI, the better your chances of securing approval or serious consideration from lenders.

How Excluding Parent PLUS Loans from Your DTI Calculation Affects Your Mortgage Eligibility

Let’s assume we don’t have the Parent PLUS Loan debt.

Your total monthly payment would then drop to $2,700, and your DTI would reduce to about 39%. This figure is comfortably below the 43% rule threshold, which enhances your chances of qualifying for a mortgage.

By illustrating this scenario, we highlight the considerable impact Parent PLUS Loans can have on your DTI. They may sway your prospects of securing a mortgage more than you might think.