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Buying Home With Student Loans And Qualifying For A Mortgage

Gustan Cho Associates
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Buying Home With Student Loans And Qualifying For A Mortgage

This BLOG On Buying Home With Student Loans And Qualifying For A Mortgage Was PUBLISHED On June 10th, 2019

Buying House With Student Loans
Gustan Cho Associates

Credit scores and debt to income ratios are two of the most important factors when it comes to qualifying for a mortgage.

  • Debt to income ratio (DTI) is the total sum of all monthly debts that report on the credit bureaus divided by the gross income of the borrower
  • One of the biggest hurdles mortgage borrowers have is buying home with student loans
  • Most student loan balances are high balances
  • It costs an average of $40,000 for room and board annually for a student to go to a four-year state university
  • Average tuition, room, and board at four-year private universities may cost more than $70,000 per year
  • It is very easy to have a student loan balance north of six figures
  • Lenders will count hypothetical monthly debt payments on student loans even though the student loan is deferred

In this blog, we will discuss Buying House With Student Loans. Every loan program has its own student loan guidelines when it comes to Buying House With Student Loans.

Buying House With Student Loans With FHA And USDA Loans

Buying House With Student Loans With FHA And USDA Loans
Gustan Cho Associates

FHA and USDA Loans has the same mortgage guidelines on student loans:

  • A fully amortized monthly payment on an extended plan can only be used as a monthly student loan debt
  • Deferred student loans do not count
  • With deferred student loans, 1.0% of the outstanding student loan debt will be used as a hypothetical monthly debt when calculating debt to income ratio UNLESS:
  • The borrower can get a fully amortized monthly payment on an extended plan by the student loan provider in writing
  • Income-Based Repayment (IBR) plans is not allowed with FHA and USDA Loans

Buying House With Student Loans With VA Loans

Buying House With Student Loans With VA Loans
Gustan Cho Associates

VA Loans have the following student loan guidelines on VA Loans:

  • Any deferred student loans that have been deferred for longer than 12 months is exempt from debt to income ratio calculations
  • If the student loans are not deferred, then VA requires mortgage underwriters to take 5% of the outstanding student loan balance, then divide it by 12 months
  • The resulting figure is the figure used as a monthly hypothetical student loan debt when the underwriter calculates debt to income ratios
  • Or a monthly payment that is fully amortized over an extended term that reports on the credit report

Fannie Mae And Freddie Mae Guidelines On Student Loans

Fannie Mae And Freddie Mae Guidelines On Student Loans
Gustan Cho Associates

Deferred student loans are not exempt from conventional loans.

  • However, Income-Based Repayment (IBR) is allowed on Conventional Loans
  • As long as the IBR Payment is reporting on all three credit bureaus, that monthly debt payment is used when calculating for conventional loans
  • Borrowers with very high balance student loans can qualify for conventional loans with IBR Payments
  • This is not the case with FHA, USDA, and VA Home Loans
  • Deferred student loans do not count on conventional loans
  • Or, student loan debts reporting on the credit report that is fully amortized on an extended payment plan can be used

For more information on this blog and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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