VA Student Loan Underwriting Guidelines
VA Guaranteed loans are the only underwriting guidelines that will allow you to have deferred student loan payments when qualifying for a home mortgage.
You do not have to count your future student loan payments if you can document that your payments will be deferred for a minimum of 12 months from the date that your loan is funded and recorded.
This can be challenging, and may require a letter from the student loan holder stating that your payments will be deferred for at least that long.
Most student loans are reviewed once a year, and will only stay in deferment if you are still enrolled in school and still meet deferment qualifications.
Payment Calculation Options
If no monthly payment is reported on a student loan on your credit report, the lender must document what the payment would be if you were to start making payments.
Examples of documentation of the required payment amount include:
- Payment listed on current credit report (IBR payments are OK)
- A statement from the student loan lender stating what the payment will be in the future; or
- A copy of the installment loan agreement; or
- If no other documentation can be obtained showing what your future payments would be, the lender must use 1% of the loan balance as the monthly payment for qualifying purposes.
IBR Income Based Repayment
VA does not have a specific guideline that addresses using an IBR, or income based repayment amount when qualifying for a home loan.
Our experience has been that some lenders are allowing you to use the payment if it is documented on the credit report. Other lenders are not interpreting it that way and require an amortized payment.
A lender friend of mine that specializes in VA financing received the following guidance from the VA earlier in 2016.
- Lender may use the Income Based Repayment (IBR) payment if it is verified (including $0.00) when the payment is fixed for a minimum of 12 months from the closing date.
- When the payment is fixed for less than 12 months from the closing date, the lender must use the regularly calculated payment once the IBR ends.
- When no payment is reported or available, the lender must use a payment calculation using 5% of the current balance, divided by 12 (months) as the qualifying payment.
The VA also depends on the underwriter to make their decision based on the overall risk, or compensating factors, and will ultimately always try to do what is in the best interest of the Veteran.
You DO NOT Have to Use 1% of the Balance
This is a common misunderstanding by inexperienced loan officers. In most cases, you can document your payments in one of the other ways recommended above.
You only need to use a 1% calculation if you cannot obtain any other documentation showing what your payments will be once you start repayment.
Not all loan officers know the guidelines, and not all lenders follow the same guidelines. It is possible that your loan officer does not have any experience with the guidelines, or the lender has chosen to create their own guidelines.
If a lender tells you something different than what you’ve read here, don’t be discouraged. Not all loan officers or lenders are created equal. Don’t take no for an answer!
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