How student loans affect mortgage loans

A common question people applying for home mortgage loans is how does their deferred student loan effect mortgage qualifying

First understand that while a student loan may be deferred, lender reasoning is that eventually you will have to start making a payment, so we must calculate something into your debt ratio.

How and what we calculate for a payment depends on the type of loan you are applying for.

If the credit report is reflecting the loans are in deferral, then for USDA, FHA, and Fannie Mae conventional loans, the minimum monthly payment is calculated at 1% of the outstanding balance. For example, a $50,000 student loan balance would results in a ‘fake’ $500 payment for mortgage loan qualifying purposes.

For Conventional Freddie Mac loans, the payment is calculated at 0.50% so that same $50,000 loan results in a $250 payment.

VA loans will treat the deferred balance at 1/12th of 5% of the loan, so the same $50,000 loan results in a payment of $209.

IF  A PAYMENT IS SHOWING ON YOUR CREDIT REPORT

If a payment is showing on the credit report, we use the payment on the credit report for Fannie Mae and Freddie Mac loans.

FHA and USDA loans use the greater of the actual payment OR 1% of the outstanding balance, WHICHEVER IS GREATER.

VA says if a payment is reporting on the credit report, but is less than the payment on the standard formula, you must get written proof of the lower payment, or use the 1/12th of 5% of the balance rule.