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Can You Qualify for Mortgage With Student Loan Default?

Can you qualify for a mortgage with a student loan default?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

The answer to your question depends on if and how the defaulted student loan appears on your credit report, the timing of the default, the steps you took to resolve (or cure) the issue and if your name is in the CAIVRS database due to the default.

If the defaulted student loan appears on your credit report and you are applying for a conventional mortgage, then lenders typically require you to provide a letter of explanation that addresses why the default occurred and any steps you took to resolve the issue.  For example, it is important to provide information on any settlement or payment plan you implemented to cure the default. Any letter that you provide to the lender should be factual, concise and focus on how you attempted to resolve the matter.

If the loan does not appear on your credit report, then you may not need to provide the letter and you should be able to qualify for a conventional mortgage, assuming your credit score and other qualification factors meet the lender’s requirements.

Review How to Qualify for a Mortgage With Student Loans

The timing of the default is also important.  A loan default of any type can negatively affect your credit score which may make it more challenging to qualify for a mortgage or you may be required to pay a higher interest rate.  The more recent the default, the more likely it is to hurt your score and the more significant the potential impact.  You can use credit monitoring apps to review your score and to determine if the defaulted student loan appears on your credit report.

The mortgage program you are applying for is another key consideration.  This is because depending on when the default occurred, you may appear in CAIVRS. Simply put, CAIVRS is a database run by the government that keeps track of borrowers who are delinquent on, defaulted on or had a claim paid on a government-backed loan, including student loans.

If you are in CAIVRS it may be impossible for you to qualify for another government-backed loan such as an FHA, VA or USDA mortgage, or you may need to satisfy a waiting period before you can apply for these programs.  In some cases you may be required to address the default or set up a payment plan, depending on the status of the student loan.

We should emphasize that lenders usually only check the CAIVRS database when you apply for a government-backed mortgage program.  So if you apply for a conventional loan, appearing in CAIVRS should not directly affect your ability to get approved for the mortgage, as long as you satisfy the lender's minimum credit score guideline.

You may still be required to provide a letter of explanation but the default may not be a disqualifying factor or delay when you apply.  In short, if you defaulted on a student loan, it is usually easier to qualify for a conventional mortgage than a government-backed program.

We should also note that if your default occurred several years ago, the required waiting period may have already passed and you may also be able to qualify for government-backed mortgage programs.  In this case, it is helpful if you paid off or settled the default, although this may not be necessary, depending on when the default occurred.

Because there are several financing options depending on your personal circumstances, your best course of action is to review your situation with multiple lenders to understand the program that is right for you. We recommend that you contact several lenders in the table below as qualification requirements for applicants with defaulted student loans may vary. Plus, shopping for your mortgage enables you to find the best loan terms.

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Sources

"Student Loan Solutions, Frequently Asked Questions."  Fannie Mae Single Family.  Fannie Mae, July 2018.  Web.

"CAIVRS - Credit Alert Verification Reporting System."  HUD.  U.S. Department of Housing and Urban Development, 2020.  Web.

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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