FHA loan qualify for a mortgage with student loans

How to Qualify for an FHA Loan with Student Loans

FHA Loan for Purchase or Refinance

An FHA loan is one of the easiest loans to qualify for if you don’t have perfect credit or a lot of savings for a down payment, closing costs, or reserves.

With interest rates at near historic lows, buying a home

Unfortunately, FHA student loan guidelines are also among the most strict when calculating the student loan payment to be included in your debt to income ratio.

We’re going to set the record straight today by reviewing the underwriting guidelines to qualify for an FHA loan with student loans.

FHA Student Loan Guidelines

FHA is pretty clear about how student loans are treated for the purposes of qualifying for a home loan.  The underwriter must include all student loans in your debt to income ratio regardless of the payment type or status of the payments.

FHA has been very consistent in this rule with this being the original decision from 2015 and it has never been modified.

Fannie Mae, Freddie Mac, VA, and USDA have all updated their student loan guidelines, in some cases multiple times, since their original guidelines in 2015.

Regardless of the payment status, the underwriter is going to use the greater of:

  • One percent (1%) of the outstanding balance on the loan; or
  • the actual documented payment; or
  • if the actual documented payment is less than one percent (1%) of the outstanding balance, the underwriter may use the lower payment only if it will fully amortize the loan over its term

These guidelines apply for both automated underwriting systems (AUS) approval or manual underwriting approval.

The key to qualifying for an FHA loan is that the student loan must be in repayment, and the repayment plan must be structured so that you are paying equal payments for a period of months that will be paid in full at the end of the term.

If you have a PSLF program or another employment contingent forgiveness program, you might be interested in reading this article: Student Loan Forgiveness Exceptions for 2020 Homebuyers?

2020 Guide to Qualifying for a Mortgage with Student Loans

Why Do Lenders Get it Wrong?

In our 2020 Guide to Qualifying for a Mortgage with Student Loans, you’ll read hundreds of stories from readers of this website about inexperienced loan officers and lenders that get it wrong.

Unfortunately, most of this misinformation is inexperienced loan officers quoting FHA’s strict 1% rule when other options allow you to use your income-based payment.  What is “wrong” is that they are trying to qualify for FHA when the 1% rule clearly rules it out as an option.

It’s heartbreaking to think that the folks that found us are just a small sample of what is probably a much bigger number of people that believed the loan officer when they said no, giving up on the dream of homeownership or a lower interest rate.

Your qualifying options are often limited to the experience of the loan officer that you’re talking to. So, the next logical question is, how do you avoid having your options limited?

If you called your lender from an online internet ad, TV or radio commercial, then you are more often than not speaking to someone in a call center with little to no actual experience looking up underwriting guidelines.

Working with an Expert

We have been helping home buyers and homeowners qualify for a mortgage with student loans since 2015 when the major challenges we face today were first introduced.

Find My Way Home is an Expert Network of experienced mortgage professionals, here to answer your questions, and put you on the right path.

You can get your questions answered by either giving us a little more information here, and we will match you with a loan officer who is an expert with student loan guidelines, or you can leave a comment or question below.

We do not sell your information to multiple lenders and hope you find someone experienced, we will introduce you to one loan officer that we know and trust that can help.

Any question that you ask below, I will personally answer, and if needed, we can introduce you to a professional, experienced loan officer that I know can help.

About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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