How is a student loan in forbearance treated when you apply for a mortgage?
If your student loan is in forbearance you are not required to make your monthly loan payment. There are a number of ways to qualify for a forbearance including financial hardship, medical bills or a job change. You are also eligible for a student loan forbearance if you meet the following requirements:
Your total student loan payments are more than 20% of your monthly gross income
You are in a medical or dental residency program
Selected AmeriCorps positions
Selected teacher positions
You are in the National Guard and have been deployed
You qualify under the Department of Defense Student Loan Repayment Program
Although forbearance enables you to pause making your student loan payments for up to a year, the loans still affect your ability to qualify for a mortgage. Despite not being required to make a payment, lenders factor the student loans into your debt-to-income ratio which impacts the mortgage you can afford.
Lenders include a payment because you are likely to be required to make student loan payments in the future and they need to confirm that you can afford both your mortgage and student loans. The higher the student loan payment included in your debt-to-income ratio, the lower the mortgage amount you qualify for.
As we outline below, how a student loan in forbearance is treated when you apply for a mortgage depends on the loan program and other considerations.
Conventional Mortgage - Fannie Mae Guidelines: the monthly payment for the student loan is calculated as either 1.0% of the outstanding loan balance or the full payment amount according to your loan documents. For example, if you have $45,000 in student loans outstanding, the monthly payment that is included in your debt-to-income ratio is $450 ($45,000 * 1.0% = $450).
Conventional Mortgage - Freddie Mac Guidelines: the monthly payment is calculated as either 0.5% of the outstanding loan balance or the full payment amount according to your loan documents. For example, if you have $45,000 in student loans outstanding, the monthly payment that is included in your debt-to-income ratio is $225 ($45,000 * 0.5% = $225).
Use ourMORTGAGE QUALIFICATION CALCULATORto determine the mortgage you can afford including your student loans
Fannie Mae and Freddie Mac are not lenders but rather set eligibility requirements for conventional loans, which are mortgages that are not backed by the government. In short, a conventional mortgage is the most common loan program in the U.S. and the type of mortgage most borrowers choose.
Most lenders are able to apply both sets of conventional mortgage student loan guidelines so we advise you to understand the methodology your lender uses before you apply for the loan. Working with a lender that uses the 0.5% payment calculation approach may enable you to qualify for a higher mortgage amount.
Conventional mortgage are provided by traditional lenders such as banks, mortgage brokers and credit unions. We recommend that you contact multiple lenders in the table below to determine the mortgage you can afford.
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FHA Mortgage: if your student loan is in forbearance and your credit report shows a required payment of zero, lenders include a payment equal to 0.5% of your outstanding loan amount in your debt-to-income ratio.
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USDA Mortgage: the student loan payment included in your mortgage application is the greater of 1% of the outstanding loan balance or the loan payment stated on your credit report.
VA Mortgage: If the student loan is expected to be in forbearance for at least one year after the mortgage closes, the loan can be excluded from your debt-to-income ratio. Otherwise the lender includes the greater of 1% of your outstanding loan balance or the loan payment on your credit report in your mortgage application. Please note that student loan debt for permanently disabled veterans is automatically eliminated unless you opt out of the program.
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To summarize, just because your student loan is in forbearance and you are not making a monthly payment does not mean the lender excludes the loan when you apply for a mortgage. Because the payment that is attributable to your student loans varies by mortgage program we recommend that you work with your lender to select the program that best positions you to qualify for the mortgage you want.
Sources
"Explore Student Loan Deferment and Forbearance." Federal Student Aid. U.S. Department of Education, 2019. Web.
"Student Loan Payment Calculation of Monthly Obligation." Mortgagee Letter 2021-13. Federal Housing Administration, June 17 2021. Web.
More FREEandCLEAR Mortgage Resources
How To Get a Mortgage with Student Loans
Learn how to qualify for a mortgage with student loans including how lenders factor your payments into your application depending on if your loan is deferred, in forbearance or on an income-based repayment plan.