Buying A House With Student Loans Mortgage Guidelines

This ARTICLE On Buying A House With Student Loans Mortgage Guidelines Was PUBLISHED On December 9th, 2019

Buying a house with student loans can be challenging.

• This holds especially true for borrowers with high student loan debt
• Deferred student loans no longer are allowed on government and conventional loans with the exception of VA loans
• VA loans do allow deferred student loans that have been deferred for longer than 12 months
• Gustan Cho Associates are experts in structuring student loan debts so borrowers buying a house with student loans can qualify
• Every loan program has its own specific mortgage guidelines on student loans

In this article, we will cover and discuss Buying A House With Student Loans Mortgage Guidelines.

Buying A House With Student Loans And How It Affects Debt To Income Ratios

Buying A House With Student Loans can hinder borrowers from qualifying for a mortgage.

• This holds true even if the borrower has student loans that are deferred and/or on an income-based repayment plan
• Student loans and auto payments are the two monthly debts that affect borrowers when qualifying for a mortgage
• This holds true for borrowers with high student loan balances
• However, having student loan debt does not mean borrowers cannot qualify for a mortgage

In the following paragraphs, we will discuss the hurdles borrowers can overcome when buying a house with student loans.

Buying A House With Student Loans With FHA And USDA Loans

FHA and USDA have the exact mortgage guidelines on student loan debt.

• Both FHA and USDA require a portion of the student loan debt to be included on deferred student loans
• If a borrower has student loans in deferment, both FHA and USDA require the mortgage underwriter to take 1.0% of the outstanding student loan balance and use that figure as a monthly hypothetical debt
• The 1.0% rule needs to be used as an actual monthly debt even though the borrower does not pay anything
• However, if the borrower can get a written letter by the student loan provider that states a hypothetical monthly debt over an extended term, this can be used in lieu of the 1.0% of the balance
• Most student loans are amortized over 25 years
• This fully amortized monthly debt normally turns out to be 0.50% of the balance

Income-based repayment cannot be used on FHA and USDA loans.

VA Agency Mortgage Guidelines On Student Loans

 

VA does exempt deferred student loans that are in deferment for longer than 12 months.

Non-deferred student loans and/or student loans that are on an IBR payment, the following guidelines apply:

• Take 5.0% of the outstanding student loan balance and divide it by 12
• The figure derived will be the hypothetical monthly debt used to calculate debt to income ratios on VA loans

IBR payments cannot be used on VA loans.

Fannie Mae And Freddie Mac Guidelines On Student Loan Debt

Conventional Loans are often referred to as conforming loans.

• Conventional loans do not exempt deferred student loans
• 1.0% of the outstanding student loan balance needs to be used as a monthly hypothetical monthly debt by mortgage underwriters when calculating debt to income ratios
• This holds true even though the borrower does not make any monthly payments
• Or, the borrowers can get a fully amortized hypothetical monthly payment over an extended-term (normally 25 years) by the student loan provider over an extended term
• This hypothetical monthly payment needs to be in writing
• One great benefit of conventional loans are IBR payments are allowed
• As long as the borrower has an income-based repayment plan, we can use the IBR monthly payment in lieu of the 1.0% of the outstanding loan balance

If the IBR payment is zero, we can use the zero payment for the debt to income ratio calculations.

Non-QM And Alternative Lending Guidelines On Student Loans

 

Non-QM and alternative mortgage programs are becoming increasingly popular. Most Non-QM and Alternative Mortgage Investors will exempt deferred student loan payments as long as the loan has been deferred for longer than 12 months. Non-QM Lenders will honor income-based repayment plans. Large student loans are one of the biggest hurdles when qualifying for a home loan. Many professionals such as dentists, doctors, lawyers, and educators have large outstanding student loans. Borrowers with large student loans with income-based repayment plans should try to qualify with conventional loans than any other loan program.