Blog

Student Loans

It’s important to understand how your student loans affect your ability to qualify for your mortgage. For most people, the monthly payment of your student loans is more important than the balance.  How it affects your qualifying ability depends on which loan program you select. Make sure to check out this link for info on calculating your debt to income ratio.

There are four primary loan types:

Fannie Mae and Freddie Mac conforming conventional financing

VA Loans

FHA Loans

Each of the loan types analyze student loan payments differently.

1. Conventional loans – Fannie Mae.  This conventional conforming loan type will allow us to use the monthly payment shown on your credit report for qualifying.  However if the monthly payment is $0, then:
   1. If the applicant documents that they are under the income based repayment program with a $0 required payment, that is the payment we use.
   2. If the applicant is not under income based repayment, then we can use either the fully amortizing payment or a payment that is 1% of the balance.
2. Conventional loans – Freddie Mac.  For student loans in repayment, we qualify based on the current monthly payment.  If the student loans are not in repayment, then the qualifying payment is .5% of the current balance.  Meaning if an applicant owes $50,000 and is not in repayment, the estimated monthly payment is $250.
3. FHA Loans.  Same as Freddie Mac
4. VA Loans.  This loan type which is veteran-only will allow us to use the payment reported to the credit bureaus, provided the applicant submits their student loan statement.  If we do not have the student loan statement and if the reported payment is less than 1/12th of 5% of the outstanding balance, then we will use 1/12th of 5% of the outstanding balance as the estimated monthly payment.  However if the student loan is deferred for more than one year post-closing, we do not need to consider a payment whatsoever.

 

So – the conclusion is if you’re in repayment on your student loans we’ll qualify with that payment.  We will only estimate the payment if you’re not in repayment.

If you are applying for a jumbo loan (greater than $1,209,750) and not in repayment, it’s likely we’ll estimate the payment to be 1% of the balance.

Questions? ajaffe@firsthome.com or 240 479 7658

Ready to pre-qualify?