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How Are Deferred Student Loans Treated Apply Mortgage?

Are student loans that are being deferred excluded when you apply for a mortgage? Someone told me I should go back to school so that my student loans will be deferred and not included when I apply for a mortgage.

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

We provide a comprehensive overview of how to get a mortgage with student loans for you to review

Based on standard mortgage guidelines, payments on students loans that are in deferment or forbearance are not excluded when you apply for a mortgage. For deferred student loans or loans in forbearance, the monthly debt payment for the loan is calculated as either 1% of the outstanding loan balance or the full payment amount according to loan documents. So depending on the calculation method used by the lender, your full loan payment or 1% of your loan balance would be counted as debt when you apply for a mortgage, even if your student loan is currently deferred or in forbearance.

Please note that if you are on an income-driven repayment (IDR) plan for your student loan that permits you to make a lower monthly payment than stated in your original loan documents, including no monthly payment, then the lender can use the lower loan payment or $0 as long as you provide loan documentation that verifies the plan and lower payment.

These guidelines are determined by Fannie Mae, the organization that sets qualification guidelines for conventional mortgages followed by almost all lenders.  The guidelines are similar for FHA and USDA mortgages and more flexible and borrower-friendly for VA mortgages.

One final point to consider is that if you decide to go back to school that could potentially interfere with your job and ability to earn income. Any changes to your employment or income could impact your ability to qualify for a mortgage.

In short, we are big proponents of education but going back to school does not improve your ability to qualify for a mortgage, at least not in the near term.

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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