How do student loans affect your ability to qualify for a mortgage if you are still in college and not making payments on the loans?

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

Edited by Michael Jensen, Mortgage and Finance Guru

Updated June 18, 2021

One of the benefits of being in college is that you are not required to make payments on your student loans until six months after you graduate, and potentially longer, depending on your circumstances. This is because student loan payments are deferred if you are enrolled in college on at least a half-time basis.

Despite not being required to make any student loan payments, if you apply for a mortgage when you are in college in most cases lenders factor a payment for your loans into your application. Lenders calculate a payment attributable to your student loans and include that figure as debt in your debt-to-income ratio.

The higher your monthly debt, the lower the mortgage you qualify for and vice versa. So your student loans can negatively affect the mortgage you can afford even if you are not currently making any payments.

Use ourMORTGAGE QUALIFICATION CALCULATORto determine the mortgage you can afford based on your monthly income and debt expense, including student loans

Mortgage lenders are required to account for deferred student loans because you are eventually going to have to start making payments after you graduate from college. Lenders need to verify that you can afford both your mortgage and your student loan payments in the future.

The positive news is that lenders use your student loan balance at the time you apply for the mortgage to determine the payment that is included in your application. So even if you expect to incur additional debt in the future -- perhaps because you are only part of the way through college -- lenders use your current loan balance.

Below we outline how the monthly student loan payment is calculated for deferred loans for different types of mortgage programs.  Lenders include this payment in your debt-to-income ratio to determine the mortgage you can afford.

Conventional Mortgage. This is the most common type of loan program. The monthly payment for a deferred student loan is calculated as either 0.5% or 1.0% of the outstanding loan balance or the full payment amount according to your loan documents.

Lenders that apply Freddie Mac guidelines use the 0.5% calculation methodology and lenders that use Fannie Mae guidelines apply the 1.0% methodology. For example, if your current student loan balance is $20,000 and the lender uses the 0.5% method, the monthly payment included in your debt-to-income ratio is $100 ($20,000 * 0.5% = $100). If the lender uses the 1.0% method, the payment attributable to your student loans is $200 ($20,000 * 1.0% = $200).

Many lenders are approved by both Freddie Mac and Fannie Mae so it is important to understand what approach your lender uses before you submit your application. Working with a lender that uses the lower 0.5% payment calculation guideline should enable you to qualify for a higher mortgage amount.

Review How to Get a Mortgage With Student Loans

FHA Mortgage. If your credit report shows a required payment a zero, a monthly payment equal to 0.5% of your outstanding student loan balance is included in your debt-to-income ratio.

USDA Mortgage. The loan payment included in your application is the greater of 1% of your deferred loan balance or the payment that appears on your credit report.

VA Mortgage. The guideline for a VA loan is more borrower-friendly than the other programs discussed above. If the student loan is expected to be deferred for at least one year after your mortgage closes, the lender is not required to factor a loan payment into your debt-to-income ratio. For example, if you apply for the mortgage as a sophomore in college and expect to be in school at least another two years, the lender may exclude your student loans.

If you do not meet the one year threshold, the lender uses the greater of 1% of your outstanding loan balance or the loan payment on your credit report. We should also highlight that student loans for permanently disabled veterans are automatically forgiven unless you choose to opt out of the program.

In closing, just because you are in school and not making payments on your student loans does not mean they do not impact your ability to qualify for a mortgage. In most cases lenders lenders include a payment for your loans in your debt-to-income ratio with the amount of the payment depending on your loan balance, mortgage program and other factors.

The table below shows top-rated lenders near you. We recommend that you contact multiple lenders to confirm their qualification guidelines for applicants with student loans. Shopping lenders also enables you to find the best mortgage terms.

Sources

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