Can I get a mortgage if I have a HECS debt?

If you’re a recent graduate or an established professional with a Higher Education Contribution Scheme (HECS) debt, you might be wondering how this impacts your ability to secure a mortgage. In Australia, many potential homeowners carry HECS debts, and understanding how this affects your mortgage application is crucial. Here’s what you need to know.

Understanding HECS-HELP Debt

HECS-HELP is a government loan program that helps eligible students pay their university tuition fees. Unlike other types of debt, repayments for HECS-HELP are income-contingent. This means that you only start repaying your HECS debt once your income exceeds a certain threshold. As of 2024, the repayment threshold is around $51,550. The repayment amount is a percentage of your income, which increases as your income rises.

How HECS Debt Affects Your Mortgage Application

1. Impact on Borrowing Capacity:

When lenders assess your mortgage application, they consider your income, expenses, and existing debts. A HECS debt reduces your disposable income since a portion of your earnings is used to repay the debt. Consequently, this can lower your borrowing capacity. Lenders will factor in your HECS repayments as part of your financial commitments, which might limit the amount you can borrow.

2. Credit Score Considerations:

HECS debt does not appear on your credit report and does not directly impact your credit score. This is good news because it means having a HECS debt won’t negatively affect your credit history. However, lenders still take it into account when calculating your overall financial position.

3. Debt-to-Income Ratio:

Lenders assess your debt-to-income ratio (DTI) to determine your ability to manage new debt. HECS repayments are included in this ratio. A high DTI might make lenders cautious about offering you a large mortgage. Keeping other debts low and managing your finances prudently can help improve your DTI.

4. Deposit Requirements:

The presence of a HECS debt doesn’t directly affect the size of the deposit you need. However, because it can reduce your borrowing capacity, you might find that you need a larger deposit to buy the property you want. Saving for a bigger deposit can also demonstrate financial discipline to lenders, potentially improving your mortgage application prospects.

Tips for Getting a Mortgage with a HECS Debt

1. Pay Down Other Debts:

Reducing other debts, such as credit card balances or personal loans, can improve your overall financial position and increase your borrowing capacity. Lenders look favourably on applicants with lower levels of non-mortgage debt.

2. Boost Your Savings:

Increasing your savings can help you provide a larger deposit, which might be necessary given the potential reduction in borrowing capacity due to HECS repayments. A larger deposit can also reduce the loan-to-value ratio (LVR), potentially leading to better interest rates and loan terms.

3. Improve Your Income:

Increasing your income, whether through a salary increase, additional employment, or freelance work, can help offset the impact of HECS repayments. Higher income can improve your borrowing capacity and overall financial health.

4. Consider a Co-Borrower:

Applying for a mortgage with a co-borrower, such as a partner or family member, can enhance your application. The combined income and shared debt responsibilities can make you a more attractive prospect to lenders.

5. Seek Professional Advice:

Consulting with a mortgage broker or financial advisor who specialises in assisting individuals with HECS debt can provide tailored advice and solutions. They can help you navigate the mortgage landscape and identify lenders who are more accommodating of HECS debt.

Conclusion

Having a HECS debt doesn’t mean you can’t secure a mortgage, but it does require careful planning and consideration of your financial situation. By understanding the impact of HECS repayments on your borrowing capacity and taking steps to improve your overall financial health, you can enhance your chances of getting a mortgage.

If you’re a healthcare professional or any other working Australian with a HECS debt, don’t let it discourage you from pursuing your homeownership dreams. With the right strategy and support, you can navigate the mortgage process successfully and find a loan that suits your needs.

For personalised advice and assistance, consider reaching out to one of our expert mortgage brokers who can help you understand your options and guide you through the application process.