How to Qualify for a Freddie Mac Mortgage with Student Loans
Freddie Mac Loan for Purchase or Refinance
Freddie Mac underwriting guidelines have changed several times since student loan repayment plans became a problem after June 2015.
You may have already received conflicting information about your home loan options, or how your student loans are calculated when qualifying for a Freddie Mac mortgage. You may have been told about the 1% rule.
It is not uncommon for inexperienced loan officers to use the guidelines of one loan program, like FHA (1% rule), and incorrectly apply them to your conventional loan application.
We’re going to set the record straight today by talking about student loan guidelines when applying for a Freddie Mac conventional mortgage.
Freddie Mac Student Loan Guidelines
Freddie Mac student loan guidelines were updated again in January 2020. As of the writing of this article, is the most recent known guidance on the subject of qualifying for a mortgage with student loans.
Currently, your underwriter may exclude your monthly student loan payment from the DTI ratio if:
- The student loan has 10 or less monthly payments remaining until the full balance is forgiven, canceled, discharged or paid by an employment-contingent repayment program, or
- The monthly payment of the student loan is deferred or in forbearance and the full balance will be forgiven, canceled, discharged or paid by an employment-contingent repayment program at the end of the deferment or forbearance period
You must provide the underwriter with documentation from your student loan servicer that shows you currently meet the requirements for the student loan forgiveness, cancelation, discharge, or employment-contingent repayment program and there is no reason to believe that you would be ineligible in the future.
Student loans in repayment, deferment or forbearance
For student loans in repayment, deferment or forbearance:
- If the monthly payment amount is greater than zero, use the monthly payment amount reported on the credit report or other file documentation, or
- If the monthly payment amount reported on the credit report is zero ($0.00), use 0.5% of the outstanding loan balance, as reported on the credit report
Note: Fannie Mae conventional is an alternative option if your income-driven payment is $0.00 – Read This
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.
By far, the single biggest mistake that inexperienced loan officers make is using FHA’s 1% rule for all student loans, all the time.
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.
The simple fact of the matter is that there are different rules for qualifying for a mortgage with student loans depending on what kind of loan you’re applying for, and what kind of payment plan you have.
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
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Have Questions or Comments?
Hi there i came across your name on the internet while doing research…wondering if you can give me some advice please im desperate!! Im trying to buy my first home but about 5 years ago i stopped paying my credit card debt. At the time i was only making 10$ an hour and couldnt afford it. Since then me and and my husband have great jobs steady for 5 years. Our combined salary is around 148k. So we been working on our credit to buy a home and my lender told me yesterday she can get us approved for a FHA loan if i can get my credit score to a 620. My current score is 578 that was the middle score. My husbands is a 634. She reccomends from her rapid rescore simulator i pay off the 5 old credit card debts listed in her simulator that totaled 4900$. I was just confused because i thought it wont help to pay old debt. Ive been working with a credit repair company and im paying extra for a fast track morgage program. Problem is FHA loan has loan limits so i need a conventional loan to purchase a house we want. Our lender said theres no way we qualify for conventional loan because of our negative items on our report and maybe after a year working with a credit repair we would qualify. Its just fustrating because we have a record of good income steady jobs for 5 years never paid our rent of 1700$ late in over 5 years. Its old credit cards that maybe totaled 6k in the past thats haunting us. Any advice?
Hi Gina, I recommend you get a second opinion. There are a few things here that make me concerned that your loan officer may not be offering the best advice.
It is typically not a good idea to pay off old collections or charge offs. This will make your scores drop because an aged derogatory account will now become a current derogatory account (even though it’s paid).
5-year-old debt is not the reason for your 578 credit score. In my 20 years of experience in the mortgage business, overwhelmingly I find that low scores are not due to bad credit, but due to not understanding how to build good credit scores.
Many credit repair companies are scams. Anything they can do, you can do yourself for free. I’m not saying that you’re with a bad company, I’m just saying that there’s a better chance than not that you’re paying too much for too little.
I also notice that you are looking at this article about how to qualify for a conventional, Freddie Mac loan with student loans. Do you have student loans?
I actually have more questions. Let’s move this conversation to email so it’s easier. Shoot me an email to scott@findmywayhome.com.
My main questions are about the student loans, and I also want to talk to you about your credit score.
I hope this helps?