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Mar 29

I Have Student Loans… Can I Get a Mortgage?

student-loan-yuma-azTop paying college majors earn a whopping $3.4 million dollars more than the lowest paying majors according to recent stats released by Georgetown University.

Among the winners are college degrees in STEM (science, technology, engineering, and mathematics), health, and business. These degrees have average annual wages of $37,000 or more at the entry level, and an average of $65,000 or more annually over the course of a recipient’s career. Click here to view the full report.

That being said, very few students get out of college these days without student loans.  If you recently graduated, and have some student loans, you might be wondering how that is going to impact your ability to buy a house.  Mortgage guidelines regarding the impact of student loan debt are always changing, and can be confusing.  With so many different terms and repayment plans, deferrals and forbearance agreements, there is some grey area.  Make sure to consult your lender about your specific scenario, but here is what the various guidelines have to say on the topic.

FHA Loans

In September 2015, FHA released Handbook 4000.1, which updated and clarified FHA guidelines about a multitude of topics.  The qualifying impact of student loan debt was one of them.

  • All deferred obligations must be included in qualifying
  • For deferred student loans, the actual payment should be used to qualify. If the actual payment is zero or is not available, must use 2% of the outstanding balance

That means if your student loans are deferred, an estimated payment, based on 2% of the balance of the loan, will be used to figure out how much of a mortgage you can qualify for.  The good news is that if you are able to obtain an actual estimated payment from the student loan company, and it is less than 2%, that amount can be used instead.

Conventional Loans

For all student loans, whether deferred, in forbearance, or in repayment (not deferred), the lender must use the greater of the following to determine the monthly payment to be used as the borrower’s recurring monthly debt obligation:

  • 1% of the outstanding balance; or
  • the actual documented payment (documented in the credit report, in documentation obtained from the student loan lender, or in documentation supplied by the borrower).
  • If the payment currently being made cannot be documented or verified, 1% of the outstanding balance must be used.

Exception: If the actual documented payment is less than 1% of the outstanding balance and it will fully amortize the loan with no payment adjustments, the lender may use the lower, fully-amortizing monthly payment to qualify the borrower.

VA Loans

VA guidelines are currently the most lenient about deferred student loans.  If student loan repayments are scheduled to begin within 12 months of the date of VA loan closing, lenders should consider the anticipated monthly obligation in the loan analysis. If the borrower is able to provide evidence that the debt may be deferred for a period outside that timeframe, the debt need not be considered in the analysis.

USDA Loans

For deferred student loans, use 1% of the outstanding loan balance or the fixed payment as reflected on the credit report.

Income Based Repayment (IBR) plans; graduated plans, adjustable rates, interest only and deferred plans are examples of repayment plans that are subject to change and do not represent a fixed payment or repayment plan. These types of repayment plans are unacceptable to represent a long term fixed payment repayment plan.

If you have student loans and would like to buy a house, give us a call!  We will review all the specifics of your personal situation and recommend a path to help you become a homeowner as soon as possible.

Find Out More!