- Every home mortgage program has its own student loan guidelines
- Larger student loans are one of the biggest factors affecting borrowers from qualifying for a home mortgage
- Average undergraduate tuition, room, and board, and fees at public four-year universities often exceed $40,000 per year
- Tuition at private four-year universities can exceed more than $70,000 per year
- Unless your family is extremely wealthy, most college students will need student loans to attend college
- It is not uncommon for an average college graduate to have an average of $200,000 in student loans by the time they graduate
- Student loan providers often offer various repayment options such as deferment, income-based repayment, or extensions on deferment until the graduate is settled in
- The average college graduate made $38,000 in 2019 on their first jobs after college graduation
- The monthly payment on a $200,000 student loan balance will not make a dent for the recent graduate in paying the student loan anytime soon
- Therefore, most recent college graduates will try to defer making payments on their student loan balance as long as possible
- Most students with high student loan balances often believe it is next to impossible to qualify for a home mortgage with such a high student loan balance
- However, this is not the case. Gustan Cho Associates are experts in helping homebuyers with high student loan balances qualify for a home mortgage after landing their first jobs after graduation
In this article, we will discuss and cover Qualifying For A Mortgage With Student Loans And High DTI.
Qualifying For A Mortgage With Student Loans: FHA And USDA Loans
FHA and USDA loans have the same student loan mortgage guidelines.
Here are the FHA and USDA agency mortgage guidelines on FHA and USDA loans:
- A fixed fully amortized monthly payment over an extended term may be used by mortgage underwriters when calculating the borrower’s debt to income ratios
- The mortgage underwriter needs written proof with verbiage stating the monthly payments of the student loan is fully amortized and fixed over a certain term (normally 25 years)
- Non-fixed monthly payments such as deferred student loans, IBR payments (Income-Based Repayment), Graduated monthly payments, adjustable monthly payments, and/or other types of irregular non-fixed monthly payments cannot be used as monthly hypothetical debts by the mortgage underwriter when calculating the borrowers’ DTI
- FHA and USDA loans require one percent (1.0%) of the outstanding student loan balance to be used as a monthly hypothetical debt and/or the actual monthly payments which are reflected on the borrower’s credit report to be used by the mortgage underwriter
- The monthly payment reported on the credit report needs to be fully amortized over an extended term
Fannie Mae allows IBR payments to be used on conventional loans. This includes zero IBR payments. Freddie Mac requires 0.5% of the outstanding student loan balance to be used as a monthly hypothetical monthly debt when calculating the borrower’s debt to income ratios.
VA Student Loan Guidelines On VA Home Loans
VA loans are the only home mortgage program that accepts deferred student loans that have been deferred for longer than 12 months.
- Deferred student loans deferred longer than 12 months are exempt from debt to income ratio calculations by mortgage underwriters on VA loans
- If the student loans are deferred for less than 12 months, then the following guidelines apply
- Taking 5.0% of the outstanding student loan balance and dividing it by 12
The resulting figure is the figure used as the hypothetical monthly debt on VA loans.
Conventional Loans Is The Best Loan Program For Borrowers With High Debt To Income Ratios
Homebuyers who have high student loan balances and high debt to income ratios, conventional loans are their best option. Remember that income-based repayment (IBR) is allowed on conventional loans but not FHA loans. Zero payment IBR payments are allowed on conventional loans. There are many borrowers who can meet both FHA and Conventional mortgage guidelines. Therefore, if a borrower who has high student loan balances may need to qualify for a conventional versus FHA loan. Gustan Cho Associates are experts in helping borrowers with high student loan balances. Homebuyers who need a lender with no lender overlays and need to qualify for a home mortgage with high student loan balances can contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at firstname.lastname@example.org. The team at GCA Mortgage Group is available 7 days a week, evenings, weekends, and holidays.