You want to buy a home but you have student loan debt, so now what? Sometimes people tell me that they don’t have to make payments because their loans are deferred, others tell me they can’t afford to buy because of their student loan debt. But it is possible to buy with student loan debt – we just need to qualify you with the payment. Even if your loan is deferred, at some point you will have to make payments on that loan!
Each mortgage has slightly different ways to calculate your payment on a student loan. So the first step is to figure out what type of loan you are going to use to buy a home and then figure out what the payment will be.
For FHA financing, there are new guidelines. The updated guidelines are:
- If you’re currently making student loan payments, the payment amount on your credit report will be counted toward your debt-to-income ratio
- If you pay less than the amount on your credit report, and you can prove it, FHA will use the lower payment number for qualification
- If your loan is in deferment or your credit report shows a $0 payment, FHA will estimate a monthly payment equal to 0.5% of your outstanding student loan balance
These changes helps those using FHA loans to qualify as it used to be a minimum of 1% of the balance of the student loan and that number can be very high!
Conventional loans vary based on whether you are using Fannie Mae or Freddie Mac for mortgage qualifying.
For Fannie Mae, you need to use the payment on the credit report. If your loan is in deferment or forbearance, we have to use a payment equal to 1% of the student loan balance.
For Freddie Mac, we also use the payment on the credit report. However if your loan is in deferment or forbearance, we use a payment equal to .5% of the balance. This can make a huge difference in what you can qualify for compared to Fannie Mae.
For VA loans, we use a payment that is on the credit report or the student loan statement. If the loan is deferred, we use a payment equal to 5% of the loan balance divided by 12.
USDA loans also use the payment on the credit report or .50% of the loan balance – whichever is higher. If the loan is deferred, we use a payment equal to .50% of the loan balance.
We need to use a payment because at some point you will be making payments on both the home and the student loans. But many people have income based repayment plans and if so, using the payment on the credit report can help you qualify for a home loan. Many loans are deferred right now due to covid but that is supposed to change in the beginning of 2022. This may actually help people that were on income based repayment plans as they may have a lower payment than we were using.
If you aren’t sure if you can qualify, talk to your loan officer! We can help you figure out the best route to go! Just know that you can still buy a home with student loan debt!!