Student Loans and Mortgage Loans

Whew. These are a right pain in everyone’s tookus, am I right?

Let’s date this content by hoping that one President Joseph Robinette Biden, Jr. gets the cajones to cancel student loan debt for everyone, so that this is no longer an issue.

Until then, here’s the low down on student loans for your home mortgage.

If student loans are in deferment and/or are reporting no monthly payment on your credit report, mortgage lenders still have to qualify your loan with a payment.

This is because we know that you’re going to have to start making payments on the loans at some point, and the underwriter needs to make sure that you can still make your house payment when you have to start making those student loan payments.

Keep in mind, this student loan information also applies if you’re a parent who took out student loans for your child. 

This is really important to keep in mind as this addition to your debts can drastically affect how much house you can qualify for.

Each home loan program has their own special way of calculating the payment we have to qualify your file with.

Fannie Mae (Conventional Loan)

Fannie Mae requires that lenders qualify your home loan with a payment equal to 1% of the outstanding student loan balance.

This means, if you have 4 loans with the following balances – $15,968, $22,649, $18,952 & $25,473 – mortgage lenders will need to use $159.68, $226.49, $189.52 & $254.73 as monthly payments to qualify your file.

Freddie Mac (Conventional Loan)

Freddie Mac requires that lenders qualify your home loan with a payment equal to 0.5% of the outstanding student loan balance.

This means, if you have 4 loans with the following balances – $15,968, $22,649, $18,952 & $25,473 – mortgage lenders will need to use $79.84, $113.25, $94.76 & $127.37 as monthly payments to qualify your file.

FHA Loans

FHA requires that lenders qualify your home loan with a payment equal to 1% of the outstanding student loan balance or the payment amount listed on the credit report, whichever is higher.

This means, if you have 4 loans reporting no payment on the credit report with the following balances – $15,968, $22,649, $18,952 & $25,473 – mortgage lenders will need to use $159.68, $226.49, $189.52 & $254.73 as monthly payments to qualify your file.

VA Loans

VA has a very wonky way of calculating the qualifying payments. They require that we take the loan balance, multiply it by 5% and divide by 12.

This means, if you have 4 loans reporting no payment on the credit report with the following balances – $15,968, $22,649, $18,952 & $25,473 – mortgage lenders will need to use $66.53 ((15968 x 5%) / 12) , $94.37 ((22649 x 5%) / 12), $78.97 ((18952 x 5%) / 12) & $106.14 ((25473 x 5%) / 12) as monthly payments to qualify your file.

Income Based Repayment (IBR)

Mortgage lenders can accept IBR (income based repayment) documents to show that your loans are part of an IBR and you only pay a lesser amount per month, but they do need to have the IBR documents in file to show the amount correlating with the loan(s) in question and it has to be in place for at least the next 12 months for the underwriter to accept it.

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