Student loans have been a hot-button issue for quite some time. While almost everyone agrees that total student loan debt poses a significant financial threat to our economy, reform has been largely unsuccessful leaving a lot of uncertainty for individuals saddled with debt.
Fortunately, one area where there is clarity regarding student loans is how mortgage guidelines treat them. With payments scheduled to resume at the start of October 2023, for the first time in a couple of years, it is important to revisit how this will affect individuals qualifying for a mortgage.
As a rule of thumb, if a student loan payment is reported on your credit report, that monthly payment amount must be included in your mortgage application debt-to-income calculation. If the credit report does not list a payment, the payment amount to be included in the debt-to-income ratio depends on the loan program:
-Fannie Mae requires that 1% of the total loan amount be used as a payment
-Jumbo Loans require that 1% of the total loan amount be used as a payment
- For example: if your student loan balance is $32,000 then your payment used for qualifying would be $320
-Freddie Mac requires that 0.5% of the total loan amount be used as a payment
-FHA loans require that 0.5% of the total loan amount be used as a payment
- For example: if your student loan balance is $32,000 then your monthly payment used for qualifying would be $160
-VA loans require the use of the following calculation (Loan balance X 5%) / 12
- For example: if your student loan balance is $32,000 then your monthly payment used for qualifying would be $133.33
Furthermore, there are some instances where student loan payments can be excluded entirely from the debt-to-income ratio. An example of this is if there are less than 10 months of payments remaining.
In conclusion, while student debt may not be forgiven anytime soon it will not prevent you from getting a mortgage. Most likely your mortgage lender will need to include the monthly payment in your debt-to-income calculations but this should not prevent you from qualifying.
If you have any questions about qualifying for a mortgage, please reach out to our office at (760) 930-0569 to discuss your options with one of our mortgage loan originators.