Student Loans & Buying a Home

Life after college. How will student loan debt affect me?  I plan to defer my student loans, should I apply for a mortgage? Can I get a mortgage while I have student loans?

Whether you’re currently in college or you’ve recently graduated from college, you’re undoubtedly eager to begin your career and start ‘adulting’.  And, if you’re like most people who attend college, student loans are an essential part of earning an education, and soon, you’ll be expected to begin to repay them.  Oftentimes, student loan servicers offer different repayment options such as a Graduated Repayment Plan, Income Based Repayment Plan, Standard (fixed) Repayment Plan, and so on.  Depending on your situation, you may have the option to defer your student loans for a specified period of time.  Once you know what repayment options your student loan servicer offers, you’ll need to decide which plan will work best for you.

One of the next big steps you’ll take is buying a home.  When it’s time to apply for a mortgage loan, along with the other debts listed on your credit report, a lender must consider your student loans and the type of repayment plan you’re utilizing.  Because each mortgage loan program may look at student loan repayment plans differently, the lender must evaluate the student loan repayment structure then use a payment figure that coincides with the mortgage loan program guidelines.  For example, when applying for an FHA mortgage, whether your student loans are deferred, in forbearance, or there is a payment showing on credit, the lender must determine the qualifying payment amount.  If you’re on a fixed payment plan where the monthly payment doesn’t change and will fully amortize the loan over its term, the fixed payment amount will be used.  However, if the payment amount is zero or variable (income based, graduated, etc.), the lender must use the greater of one percent (1%) of the outstanding balance or the payment as reported on the credit report.

Now, don’t take this as bad news.  As confusing as it may seem, many people are able to qualify for a mortgage even though they have student loan debt.  Keep in mind, because each loan program may have a different guideline as it pertains to student loans, it’s important to do your research and speak with a knowledgeable and experienced Mortgage Loan Officer to discuss the best mortgage option that will work for you.

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