• How do Student Loans affect my mortgage approval?

  • Conventional & FHA mortgage guidelines with student loan debt

    Student Loans have become a necessity for most Millennials trying to obtain a college degree.  This is often a tough payment to mentally swallow and often keeps people renting longer than they should because they think there is no chance at buying a home.  Most folks are graduating with student loan debt, cell phone bills and car payments and are finding it extremely difficult to qualify for a mortgage.

    Take a moment to better understand the rules on how your student loan debt will affect the mortgage qualification.  Please read below:

    Conventional Mortgage Financing (Freddie Mac):

     

    If no monthly payment is reported on a student loan that is deferred or in forbearance and there is no documentation available indicating a proposed monthly payment, 1% of the outstanding balance must be used to qualify.

    How To Choose Between an FHA Loan VS  a Conventional Mortgage

    The key here is you need to get documentation.  It can come in the form of:

    • Direct verification from the creditor
    • Copy of the installment loan agreement
    • If the payments are currently deferred, the amount that will be required once the deferment has ended as shown in the financial institution student loan certification or loan agreement

    If the monthly payment is $0.00 and the loan is in repayment status, this amount may be used in qualifying subject to the following:

    • Documentation is required to support the $0.00 payment
      • If the documentation provided reflects higher payments, the higher payments must be considered

    FHA Mortgage Financing:

     

    All student loans must be included in your debt-to-income ratios regardless of the status of the loan or payment type.  Loans in deferment or forbearance may not be excluded.

    One of the following two options are required for determining the qualifying payment:

    • Utilize the greater of:
      • 1% of the outstanding balance, OR
      • The monthly payment reflected on the credit report
    • The actual payment only if its fixed and fully amortized
      • Written documentation from the student loan provider is required

    Please Call Us with any questions on this information as it can be confusing.  We are fielding calls on this subject every day and can help walk you through the pre-approval process with ease.

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