Does Student Loans Affect Mortgage – 4 Tips For Choosing The Right One

Are you planning on buying a home or refinancing your mortgage but wondering how student loan debt may affect your ability to qualify for a mortgage? In this video, we discuss how student loans may affect a first time home buyer when using an FHA loan, VA Loan or a Conventional Loan.

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➡FHA Student Loan Guidelines

FHA is pretty clear about how student loans are treated for the purposes of qualifying for a home loan. The underwriter must include all student loans in your debt to income ratio regardless of the payment type or status of the payments.

Regardless of the payment status, the underwriter is going to use the greater of:

One percent (1%) of the outstanding balance on the loan; or
the actual documented payment; or
if the actual documented payment is less than one percent (1%) of the outstanding balance, the underwriter may use the lower payment only if it will fully amortize the loan over its term

➡VA Loan with Student Loan Guidelines

VA’s approach to factoring in student loan payments is very similar to how they approach other qualifying guidelines. Qualifying for a VA loan with student loans will depend on two things, is there a payment? Or is there not a payment?

How to Calculate a Student Loan Payment

DEFERRAL EXCLUSION: If you (the Veteran) or other borrower provides written evidence that the student loan debt will be deferred at least 12 months beyond the date of closing, a monthly payment does not need to be considered.

NO PAYMENT FORMULA: If your student loan is in repayment or scheduled to begin within 12 months from the closing date of your VA loan, the lender must consider the anticipated monthly obligation using the following formula.

No Payment Formula: Student Loan Balance x 5% / 12

➡Fannie Mae Student Loan Guidelines

Fannie Mae student loan guidelines fall into two categories.

Payment Plan (even if the income-based payment is $0)
No Repayment Plan (deferred, forbearance)

Repayment Plan: If a monthly student loan payment is reported on the credit report, the underwriter may use that amount for qualifying purposes. If your credit report does not reflect the correct monthly payment, the underwriter may use the monthly payment that is on the student loan documentation (the most recent student loan statement).

If the credit report does not provide a monthly payment for the student loan, or if the credit report shows $0 as the monthly payment, the underwriter must determine the qualifying monthly payment using one of the options below.

If you are on an income-driven payment plan, you can provide the underwriter with student loan documentation from your servicer to verify the actual monthly payment is $0. The underwriter may then qualify you with a $0 payment.

No Repayment Plan: For deferred loans or loans in forbearance, the lender may calculate a payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment), or a fully amortizing payment using the documented loan repayment terms.

➜Freddie Mac Student Loan Guidelines

If the monthly payment amount is greater than zero, use the monthly payment amount reported on the credit report or other file documentation, or
If the monthly payment amount reported on the credit report is zero ($0.00), use 0.5% of the outstanding loan balance, as reported on the credit report

Do you have additional questions about student loans and buying a home or doing a refinance and want to be connected with a mortgage professional?

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Jeb Smith (huntington beach Realtor/orange county real estate)
DRE #01407449
Coldwell Banker Realty
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