Student Loans and Mortgages – What You Need to Know


Filed under: Borrower Tips


The topic of students loans is often brought up by customers, with many people wanting to know how their loans will relate to getting pre-approved and approved for a mortgage. According to the statistics, student loan debt has now surpassed revolving debt (credit card debt) for second place, only behind mortgages in the United States.Student Loans and Mortgages

Since so many people are carrying student loans, it is a topic that real estate and mortgage professionals need to aware of and understand that student debt can and often will have an impact on qualifying for a mortgage.

How Student Loan Debt Works for Mortgage Approval

Every loan type is a little bit different, so the details will vary depending on the type of mortgage financing that you need. For student loans, they can fall into several categories:

  • Forbearance: Forbearance is the most difficult one to get around for mortgage approval. This status means that you are basically saying: “I can’t afford to pay this loan right now.” So, no payments are being made on the outstanding balance.  Underwriters typically do not look favorably on this situation.
  • Deference: When a loan is deferred, circumstances will vary based on the type of loan the buyer is trying to obtain. For example, with VA loans, if student loans are deferred for at least 12 months, then lenders will disregard the payment for mortgage qualification. FHA and conventional loans, however, require 1% of the balance as the payment calculation.  So if the student loan is $50,000, a payment of $500 will be factored into the buyer’s debt ratios.
  • Repayment: When a loan is in repayment, more often than not, the actual payment shows up on the credit report. When that’s the case, it’s usually the easiest scenario.   Whatever monthly payment is shown on the credit report will be factored into the debt ratios.

There are many situations where people are carrying large amounts of student debt, and even a 1% calculation on the total loan amount can impact the pre-approval. However, that doesn’t mean that financing isn’t available.

Since things change depending on the status of your student loans and the type of mortgage that you need, the best thing that you can do is get personalized recommendations from a mortgage professional. I am happy to look at your situation and help you find the financing option that will make it possible to buy a home. There are great ways to get you approved, even when you are carrying student loan debt.


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