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) it and if your name is in the CAIVRS database due to the default.
If the defaulted student loan appears on your credit report 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 and concise and focus on how you attempted to resolve the matter and cure the default.
Review How to Qualify for a Mortgage With Student Loans
The timing of the default is also important because you may be required to wait before you apply for certain types of mortgage programs. Additionally, a loan default of any type can also 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 sites like AnnualCreditReport, CreditKarma or Credit.com to review your credit score and report for free. Reviewing your credit report before you apply for a mortgage enables you to identify and address any issues including if and how the defaulted student loan appears on your report.
If the loan does not appear on your credit report, then you should be able to qualify for a conventional mortgage assuming your credit score and other qualification factors meet the lender’s requirements. If the loan does appear on your report then you may be required to provide a letter of explanation or you may be ineligible for certain mortgage programs.
The second point to consider is that depending on when the default occurred, you may appear in the CAIVRS database. 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 the system, it may be impossible for you to qualify for another government-backed loan or you may need to satisfy a waiting period before you can apply for the program. Lenders usually only check the CAIVRS database when you apply for a government-backed mortgage program such as an FHA, VA or USDA loan.
If you apply for a conventional mortgage, the lender should not check CAIVRS so appearing in the database should not affect your ability to qualify for a mortgage. Additionally, if your default occurred several years ago, the required waiting period may have already passed so you may also be eligible for government-backed mortgage programs.
Your best course of action is to review your situation with multiple lenders to understand your financing options and the step you should take to qualify for a mortgage. We recommend that you contact at least five lenders as qualification requirements for applicants with defaulted student loans may vary. Plus, comparing multiple lenders enables you to find the best mortgage terms.