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Student loan debt has exploded over the previous three decades. In 1995, the total federal student loan balance was $187 billion. In 2022, the total federal student loan balance was an estimated $1.617 trillion. Combining this with rising housing prices, both renting and buying, it is getting more challenging to afford a house in America.

At Capital City Mortgage, we assist and guide you through the process to help you afford the house you want and can afford.  Below we will review the different types of loans and look at how they will calculate your student loan payment. Sometimes there is only one good choice when determining what program to use when buying a house.

We will look at Fannie Mae, Freddie Mac, FHA, VA, and USDA, and they all provide guidance to handle the various circumstances surrounding student loan repayment options.

Fannie Mae – Student Loans

Fannie Mae requires a monthly payment to be included for all student loans, even if the monthly payment amount is $0.00.  

  • Student loan payments will begin within 12 months, or the monthly payment has already begun.
    • If the credit report reports a monthly payment amount greater than $0.00, the lender will qualify the borrower based on this amount.
    • If the credit report shows no payment or $0.00, the lender will request documentation from the borrower documenting the correct monthly payment.
  • Deferred Payments
    • The lender will use a payment of 1% of the outstanding student loan balance for qualifying purposes.
    • For example, using a $25,000 student loan balance.
      • The qualifying monthly payment would be $250.

Freddie Mac – Student Loans

Freddie Mac guidelines tend to be a little more forgiving than Fannie Mae’s. 

  • Student loans in forbearance, deferment, or in repayment.
    • For borrowers with a monthly payment greater than $0.00 on their credit report, this would be the qualifying payment.
    • For borrowers with no payment or $0.00 reporting, Freddie Mac would use 0.5% of the loan balance as the qualifying payment.
      • For example, using a $25,000 student loan balance.
        • The qualifying monthly payment would be $125.

FHA – Student Loans

FHA offers very straightforward guidance for student loan qualifying payments.

  • All outstanding loan balances, regardless of current status.
    • If the credit report shows a payment greater than $0.00, this would be the qualifying payment.
    • If the credit report shows a payment of $0.00, the qualifying student loan payment would be 0.5% of the loan balance.
      • For example, using a $25,000 student loan balance.
        • The qualifying monthly payment would be $125.
    • The borrower may also use the written documented payment provided by the student loan provider. 

VA – Student Loans

VA guidelines tend to be the most forgiving of all the agencies.

  • If there is documented proof that the student loan repayment is not to begin within the next 12 months, VA guidelines will allow the payment to be excluded from the calculations.
  • If a current monthly payment or payment will be required within the next 12 months, there is a process to calculate the qualifying payment.
    • The “threshold” payment is calculated by taking 5% of the outstanding loan balance and dividing it by 12 months.
      • For example, using a $25,000 student loan balance.
        • The threshold payment would be $25,000 x 5% / 12 = $104.17
        • As you can see, this is the lowest calculation of the agencies.
    • If the reported payment is higher than the threshold, the higher payment will be used.
    • If the threshold payment is higher than the actual payment, the lower payment may be used by documenting the terms of the student loan and the monthly payment.

USDA – Student Loans

USDA traditionally has some of the lowest default rates in the mortgage loan industry. One of the reasons is they have some of the toughest guidelines. That being said, their student loan guidelines are usually in line with the others.

  • Even if the borrower has a forgiveness plan for the student loan, the lender must still use the documented or calculated estimated payment for qualification.
  • If the credit report shows a payment greater than $0.00, this would be the qualifying payment.
  • If the credit report shows a payment of $0.00, the qualifying student loan payment would be 0.5% of the loan balance.
    • For example, using a $25,000 student loan balance.
      • The qualifying monthly payment would be $125.

With so many student loans in forbearance during the last few years, it is important to get the best information you can from your loan officer. If a borrower with a $75,000 student loan tries to qualify for a Fannie Mae loan, they may use a qualifying payment of $750. Instead, if the borrower explored a Freddie Mac option, the qualifying payment may only be $375.

Contact Capital City Mortgage today with any questions or concerns about qualifying for a mortgage with a student loan. We are here to help you get the best loan for your situation.

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