Applying for a Mortgage With Student Loans | Student Loan Guidelines
Debts are factors that affect debt-to-income ratios and they can be a hurdle when applying for a mortgage with student loans. Car payments and student loans can be the two biggest factors when calculating debt-to-income because of their amortization over such a short period. The student loan repayment qualifying factors depend on FHA student loan guidelines, conventional student loan guidelines, VA student loan guidelines, and USDA student loan guidelines.
Student Loan Repayment Plans
People who have student loans can choose from different types of repayment plans by talking to their student loan providers and asking them about managing payments.
- Student loan providers will offer repayment plans and estimates that can help debt-to-income ratios.
- The repayment plans include income-contingent repayment (ICR), standard repayment, pay as you earn (PAYE), revised pay as you earn (REPAYE), income-based repayment (IBR), graduated repayment, extended fixed repayment, and extended graduated repayment.
- Some student loan providers may offer other terms of repayments.
When choosing a repayment plan, it is important to pick a plan that is fully amortized and understanding how each loan program calculates the payment.
Qualifying for a FHA Loan With Student Loans – FHA Student Loan Guidelines
When qualifying for a FHA loan, debt-to-income ratio will be lower when choosing a repayment plan that is the lowest monthly payment (fully amortized). This is not always the best option when paying off student loan debt, but will help lower the debt-to-income when qualifying for a FHA loan with student loansFFHA.
FHA student loan guidelines – regardless of the payment status, the mortgagee will use:
- The greater of:
o 1 percent of the outstanding balance of the loan or
o The monthly payment reporting on the credit report
- The actual documented payment, provided the payment will be fully amortized
FHA Student Loan Guidelines Documentation:
- If the payment for student loans is shown on the credit report, no further documentation is required.
- If the credit report does not reflect a monthly payment for the loan, or the payment reported is greater than the payment reflecting on the credit report:
- The mortgagee will need a copy of the loan agreement/payment statement in order to verify the monthly payment.
- If the loan statement/agreement or credit report shows a deferred payment for installment loan, the mortgagee must have written documentation of the deferral of the liability from the creditor with an outstanding balance and term of the installment loan.
- If the actual monthly payment is not available for the installment loan, the mortgagee must use 5 percent of the outstanding balance to establish the monthly payment.
FHA student loan guidelines require a fully amortized repayment for monthly student loans plan must be in writing by the student loan provider. You can talk with your Loan Originator and your student loan provider to figure out what your payment needs to when being pre-approved for a FHA loan.
Qualifying for a Conventional Loan With Student Loans – Conventional Student Loan Guidelines
When qualifying for a conventional loan, debt-to-income ratio will be lower when choosing a repayment plan that is the lowest monthly payment (fully amortized). This is not always the best option when paying off student loan debt, but will help lower debt-to-income ratios when qualifying for a conventional loan with student loans.
When a credit report does not reflect a monthly payment for student loans or if it reflects $0 as the monthly payment, the lender must use the following to determine the monthly payment:
- When there is an income driven repayment plan, the lender may obtain documentation to verify the payment is actually $0.
- The lender can use $0 for the payment if it is an income driven repayment plan.
- When a loan is deferred or in forbearance, the lender will calculate the monthly payment equal to 1% of the outstanding balance (even if the amount is lower than the actual fully amortized statement), or
- Documentation for the loan repayment terms reflecting fully amortized.
Fannie Mae and Freddie Mac conventional student loan guidelines will require a fully amortized monthly payment in writing by the student loan provider.
Qualifying for a VA Loan With Student Loans – VA Student Loan Guidelines
Lenders that use VA student loans guidelines consider the anticipated monthly debt obligation if the student loan repayments are scheduled to begin within 12 months of the VA closing. VA student loan guidelines state that when the deferred student loans can be deferred outside that period, with evidence, the debt does not need to be considered.
USDA – Qualifying for a USDA Loan With Student Loans
Location of the property must be in a USDA approved area and the borrower needs to qualify for a USDA loan. Deferred student loans are not exempt. The lender will either use 1% of the outstanding balance or the loan needs to be fully amortized with a monthly payment statement/agreement when calculating debt-to-income ratios for USDA loans with student loans.
Lenders often have overlays when it comes to maximum debt-to-income ratios. Student loans often have to be manually calculated due to guidelines. Understanding FHA student loan guidelines, conventional student loan guidelines, VA student loan guidelines, and USDA student loan guidelines will prevent any unforeseen circumstances during the mortgage process.