Qualify for a Mortgage with Student Loans

Fannie Mae Student Loan Guidelines

These guidelines apply specifically to how the Fannie Mae DU (Desktop Underwriter) Automated Underwriting System will calculate your student loan payments.  A Fannie Mae loan is considered a Conventional Mortgage.

Deferred or Forbearance Payments

Fannie Mae does not allow an underwriter to ignore a student loan that shows up on the credit report that is deferred or in forbearance.

You must use a 1% of the reported or documented principal balance as a payment when calculating your debt to income ratio on the loan application.

Many will convert a deferred loan into a low or $0 payment (IBR) income based repayment plan.

Income Based Repayment

Fannie Mae will allow you to use the income based payment as reported on your credit report.  If the payment is $0, and can be documented as accurate, you can use $0 as the payment when calculating your debt to income ratio.

Freddie Mac Underwriting Guidelines

These guidelines apply specifically to how the Freddie Mac LPA (Loan Product Advisor) Automated Underwriting System will treat the calculation of your student loan payments.  A Freddie Mac loan is considered to be a Conventional Mortgage.

Student Loan Forgiveness

UPDATE:  Effective January 1, 2020 - If you are eligible for employment contingent student loan forgiveness, the underwriter may ignore your student loans if you qualify for the forgiveness program.  You must provide documentation showing that you are enrolled and in good standing and that forgiveness is likely.

Deferred or Forbearance Payments

UPDATE:  Effective November 1st, 2018 - Freddie Mac does not allow an underwriter to ignore a student loan that shows up on the credit report that is deferred or in forbearance.

You must use a .50% of the reported or documented principal balance as a payment when calculating your debt to income ratio on the loan application.

Many will convert a deferred loan into a low payment (IBR) income based repayment plan to avoid using the .50% calculation.

Income-Based Repayment

UPDATE:  Effective November 1st, 2018 - IBR payments can be used if the payment is greater than $0.  If payment is $0, you must use .50% of the student loan balance as a payment.

If you are in an Income-Based Repayment plan and your payment is $0, Fannie Mae guidelines will be your best option.

VA Student Loan Guidelines

These guidelines apply to how the Fannie Mae DU (Desktop Underwriter) Automated Underwriting System will calculate your student loan payments.  Manually underwriting a VA mortgage will not change these student loan guidelines.

Deferred or Forbearance Payments

VA does not allow an underwriter to ignore a student loan that shows up on the credit report that is deferred or in forbearance.

You must use the following formula to calculate a "qualifying payment" for any student loan that is not in repayment:

• Principal or reported balance x 5% / 12
• Example:  100,000 student loans x 5% = $5,000 / 12  = $416.67
• $416.67 would be used as your student loan payment when applying for a VA mortgage.

Many will convert a deferred loan into a low payment (IBR) income-based repayment plan.

Income-Based Repayment

VA does not specifically say that you cannot use an Income Based IBR payment for calculating your debt to income ratios.  Here is an excerpt directly from the VA guidelines:

The lender must use the payment(s) reported on the credit report for each student loan(s) if the reported payment is greater than the threshold payment calculation above.

If the payment reported on the credit report is less than the threshold payment calculation above, the loan file must contain a statement from the student loan servicer that reflects the actual loan terms and payment information for each student loan(s).

The statement(s) must be dated within 60 days of VA loan closing and maybe an electronic copy from the student loan servicer’s website or a printed statement provided by the student loan servicer.

It is the lender’s discretion as to whether the credit report should be supplemented with this information.

USDA Student Loan Guidelines

These guidelines apply to how the USDA (GUS) Government Underwriting System Automated Underwriting System will calculate your student loan payments.

UPDATED 9-24-2019 - Temporary Modification of Section 11.2 of HB-1-3555 pertaining to Student Loans.

USDA has updated its guidance regarding the student loan payment requirement. The new guidance specifically affects the required payment utilized for Non-Fixed student loan repayment plans. 

• Student loans. Lenders must include the payment as follows:

o    Fixed payment loans: A permanent amortized, fixed payment may be used in the debt ratio when the lender retains documentation to verify the payment is fixed, the interest rate is fixed, and the repayment term is fixed.

o    Non-Fixed payment loans: Payments for deferred loans, Income-Based Repayment (IBR), Graduated, Adjustable, and other types of repayment agreements that are not fixed cannot be used in the total debt ratio calculation. The higher of one-half percent (.50%) of the loan balance or the actual payment reflected on the credit report must be used as the monthly payment in the underwriter decision. No additional documentation is required.

The change—highlighted above—removes the requirement that non-fixed payment loans are calculated using one percent (1%) and inserts the use of one-half percent (0.5%) or the payment reflected on the credit report, whichever is greater.

Although temporary, it should be noted that RD/USDA intends to permanently incorporate the change into Chapter 11 of HB-1-3555 in the near future.

You must use a 1% of the reported or documented principal balance as a payment when calculating your debt to income ratio on the loan application.

Income-Based Repayment

USDA will not allow you to use the income based payment as reported on your credit report.  

You must use .5% of the reported or principal balance of all of your student loans as your payment when calculating your debt to income ratio.

Jumbo Student Loan Guidelines

Jumbo loans are by definition a portfolio loan.  This means that the lender that writes the underwriting guidelines will define how student loan payments are calculated for your debt to income ratios.

It is not uncommon for Jumbo lenders to be more strict than conventional mortgage underwriting.  It is also not uncommon for there to be some flexibility as a result of compensating factors like loan to value, reserves, employment or credit history.

A loan officer that has a lot of experience with Jumbo mortgages will be able to pretty quickly offer you what options are available to them.

Keep in mind that because these guidelines follow the lender, different lenders may treat the status of your student loans differently.

Portfolio Student Loan Guidelines

A Portfolio loan is not a specific loan program, but represents a broader channel of loans that are underwritten by each individual lender.  

It is not uncommon for a portfolio lender to be more flexible than conventional mortgage underwriting.  It is also not uncommon for there to be some flexibility as a result of compensating factors like loan to value, reserves, employment or credit history.

A loan officer that has a lot of experience with niche investors and portfolio mortgages will be able to pretty quickly offer you what options are available to them.

Keep in mind that because these guidelines follow the lender, different lenders may treat the status of your student loans differently.