You worked hard to earn your higher education, but let’s be honest, there’s nothing fun about student loan payments. They make saving more difficult and may increase your debt-to-income ratio. Our experience indicates your student loans shouldn’t stop you from becoming a homeowner! Here’s what you need to know as you discuss your next steps to homeownership.

Student Loans affecting Savings

We understand that paying hundreds of dollars a month towards your student loans may affect the amount you have for down payment. If you’ve heard that you need 20% down to purchase a home, that is incorrect. There are many mortgage options available with a down payment as low as 3%.  Also, there are down payment assistance programs that can cover your down payment and even possibly eliminate your student loan balances

Student Loans affecting your Debt-to-Income (DTI) Ratio

Thought you left ratios behind in grade school? Think again! Your debt-to-income ratio determines what percentage of your monthly income is put towards paying your monthly recurring debt obligations. This is where qualifying for a mortgage with student loan debt can become more complicated.  Monthly payments on student loans can fluctuate routinely, and their status affects the amount that is counted in your DTI.  Loans can be in deferment, forbearance, income-based repayment, graduated payment, or full repayment.  Sometimes, loans are being added for upcoming semesters or schooling for masters and/or doctorates.  Certain professions provide for student loan forgiveness after a period of employment.  To muddy the waters further, there are two different sets for Conventional guidelines (Fannie Mae and Freddie Mac), FHA guidelines, and VA guidelines.  Below are the guidelines that we use to determine which loan programs are the best match for you and your credit and income profile.

Student Loan Guidelines for FHA Loans

Student Loan Guidelines for Conventional Loans: Fannie Mae

Student Loan Guidelines for Conventional Loans: Freddie Mac

Student Loan Guidelines for VA Loans

  • If the borrower(s) 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.
  • If a student loan is in repayment, or scheduled to begin within 12 months from the date of VA loan closing, the lender must consider the anticipated monthly obligation in the loan analysis and utilize the payment established by calculating each loan at a rate of five percent of the outstanding balance divided by 12 months.
  • Example:  A borrower has a $25,000 student loan balance and you multiple it by 5%, which equals $1,250.  This amount ($1,250) is divided by 12 months to equal a monthly payment of $104.17.
  • If the payment(s) reported on the credit report for each student loan(s) is greater than the threshold payment calculation above in a above, the lender must use the payment recorded on the credit report.
  • If the payment(s) reported on the credit report is less than the threshold payment calculation above, in order to count the lower payment, the loan file must contain a statement from the student loan servicer that reflects the actual loan terms and payment information for each student loan(s).
  • The statement(s) must be dated within 60 days of VA loan closing and may be an electronic copy from the student loan servicer’s website or a printed statement provided by the student loan servicer.
  • It is the lender’s discretion as to whether the credit report should be supplemented with this information.

Buying a home with student loan debt may seem challenging, but it’s not impossible! Speak with one of our seasoned loan officers to learn more about the next steps to homeownership. 833.354.5626