How Can I Qualify For a Mortgage With Student Loan Debt?

This Article Is About How Can I Qualify For A Mortgage With High Student Loan Debt

How Can I Qualify For A Mortgage With High Student Loan Debt is one of the most frequently asked questions by many of our viewers at Capital Lending Network, Inc. With the booming housing market and historic low mortgage rates, many renters are expediting their plans to purchase a home. Home prices have been skyrocketing year after year. HUD and the Federal Housing Agency (FHFA) have been increasing FHA and Conforming Loan Limits have been increasing for the past four years. The U.S. economy and the housing market were booming like never before the coronavirus outbreak in February 2020. The unemployment rate was at historic lows at under 3.5%. The Dow Jones Industrial Averages hit 29,000 for the first time in history. The Trump economy was booming with no sign of a correction. The housing market was booming with no trace of correction. Demand for housing far outpaced the inventory of homes. Homebuilders were selling homes that did not even break ground yet. Homebuilders were grabbing up any land that was buildable. Then the whole country closed due to a contagious worldwide virus. The coronavirus outbreak in February 2020 shut down the whole country. Many homebuyers with pre-approval letters shopping for homes suspended their home shopping in hopes home prices will drop.

Housing Market During Coronavirus Outbreak And During The Shutdown Of The U.S. Economy

What the housing market looks like during the coronavirus epidemic and during the shutdown of the US economy

Many real estate experts and economists thought the COVID-19 outbreak will hurt the housing market. Therefore, tens of thousands of homebuyers put their home purchase plans on hold. Over 50 million Americans filed for unemployment. The unemployment rate reached close to 20% and many so-called experts were predicting over 35% unemployment in the months ahead. President Donald J. Trump and his administration rolled up their sleeves and got to work in trying to avoid the worst economic disaster in history. Trump quarterbacked an economic package to stop the bleeding from the coronavirus outbreak in the United States. The CARES Act was passed and President Trump signed it into law. Forbearance on mortgages as part of the CARES ACT to avoid another housing crisis.

The Recovery Of The U.S. Economy And Booming Housing Market

The economy started to recover. In just six months, the most recent unemployment rate is now at 6.9%. The housing market is stronger today than it was prior to the coronavirus outbreak. The Dow Jones Industrial Averages is nearing 30,000 which is higher than it was prior to the coronavirus outbreak. Other market indices followed and have hit historic highs. Pfizer Pharmaceuticals announced today they have finalized a vaccine for coronavirus which sent the Dow Jones Industrial Average 1,500 higher at the open. Other market indices followed the Dow’s lead. The outcome of the 2020 elections is still in limbo with proof there was a voter and election fraud from the Democrats. Wall Street is expecting Donald Trump to be reelected to a second term despite Joe Biden and Kamala Harris declaring victory.

The Booming Housing Market

The housing market is expected to remain strong for the next 18 to 24 months due to the Central Bank lowering interest rates at zero percent. When the FED rate is zero percent, mortgage rates follow a downward trend and will remain at historic lows. Many renters are jumping on the home buying bandwagon. However, many homebuyers are worried about their high student loan balance. The highstudent loan balance is one of the main barriers affecting homebuyers from qualifying for a home mortgage.

In this article, we will discuss and cover the frequently asked question of How Can I Qualify For A Mortgage With High Student Loan Debt.

How Can I Qualify For A Mortgage With High Student Loan Debt: Is It Possible?

Every home mortgage loan program has its own student loan debt agency mortgage guidelines. The team at Capital Lending Network are experts in structuring a home mortgage program for homebuyers with large outstanding student loan debts. With the high cost of post-high school education, most college graduates and/or post-secondary school graduates have large outstanding student debts. Recent data show 80% of college graduates have outstanding student loan debt when they graduate and hit the workforce. Unfortunately, only VA loans will exempt student loan debts from DTI calculations on student loans that have been deferred for longer than 12 months. Large outstanding student loans affect debt to income ratios.

How Can I Qualify For A Mortgage With High Student Loan Debt: IBR Repayment Plan On Conventional Loans

How Can I Qualify For A Mortgage With High Student Loan Debt

Those with graduate and/or professional degrees can have substantial large outstanding student loan debts. This holds true if they have graduated from private colleges and/or universities. Doctors, dentists, nurses, educators, lawyers, upper-level business executives, and other professionals with graduate and/or professional degrees can easily have outstanding student debts in the six figures. The only home mortgage program that accepted income-based repayment (IBR) was conventional loans until recently where HUD changed its student loan guidelines. HUD now allows income-based repayment (IBR payments) on debt to income calculations on FHA loans.

Income-Based Repayment Used By Mortgage Underwriters

Income-based repayment is very common for college graduates with large outstanding student loans. The student loan provider will take a certain percentage of the borrower’s gross income and use that figure as the minimum monthly payment due on income-based repayment. Let’s take a case scenario. A medical doctor makes $100,000 per year at a hospital. The doctor has an outstanding student loan balance of $500,000. Depending on the doctor’s other debts, the student loan provider may set up an income-based repayment of $500 per month. Now if the doctor did not have an income-based repayment plan and the outstanding student loan debt was deferred, the doctor will not pay anything until the student loan is out of deferment. However, that is not how lenders will see it.

Lenders will take 0.50% of his outstanding student loan balance of $500,000 which is $2,500 dollars. The 0.50% of the outstanding loan balance will be used as a monthly hypothetical debt. The 0.50% rule will be used as a monthly hypothetical debt by the mortgage underwriter when qualifying for a home mortgage.

HUD Agency Guidelines On Student Loan Debts On FHA Loans

HUD, the parent of FHA, sets student loan agency mortgage guidelines on FHA loans. HUD now allows income-based repayment to be used. HUD does not allow deferred student loans that have been deferred for longer than 12 months to be exempt from debt to income ratio calculations like VA Loans does. There are only two ways HUD allows borrowers with outstanding student loan debts to qualify for FHA loans. HUD requires 0.50% of the outstanding student loan balance to be used as a monthly hypothetical debt by mortgage underwriters in calculating borrowers’ debt to income ratios. Or, get a written statement by the student loan provider what the monthly payment will be of the outstanding student loan that is fully amortized over an extended term. The extended term is normally 25 years. This fully amortized monthly payment over an extended-term statement needs to be in writing. If the hypothetical monthly payment of the fully amortized loan is less than 0.50% of the outstanding student loan balance, then it can be used.  Borrowers with large outstanding student loans on an IBR repayment plan should try to qualify for conventional loans.

USDA Agency Guidelines On Student Loan Debts On USDA Loans

USDA Agency Guidelines on student loan debts on USDA loans are exactly the same as FHA Loans. IBR payments are now allowed on USDA loans. Deferred student loans that have been deferred do not matter and cannot be exempt from debt to income ratio calculations.

USDA requires 0.50% of the outstanding student loan balance to be used as a monthly hypothetical debt by mortgage underwriters in calculating borrowers’ debt to income ratios. Or, get a written statement by the student loan provider what the monthly payment will be of the outstanding student loan that is fully amortized over an extended term. The extended term is normally 25 years. The fully amortized monthly payment over an extended-term statement needs to be in writing. If the hypothetical monthly payment of the amortized loan payment is less than 050% of the outstanding student loan balance, then the lower hypothetical monthly payment can be used.

How Can I Qualify For A Mortgage With High Student Loan Debt: VA Agency Guidelines

How Can I Qualify For A Mortgage With High Student Loan Debt

Deferred student loans that have been deferred for longer than 12 months are exempt from debt to income ratio calculations on VA loans.

  • IBR payments do not count on VA loans
  • However, if borrowers have IBR payments or deferred student loans that are deferred less than 12 months, the VA requires the mortgage underwriter to take 1.0% of the outstanding student loan balance and use it as a monthly hypothetical debt
  • Or, take 5.0% of the outstanding student loan balance and divide it by 12 months
  • The resulting figure will be the figure used as the monthly hypothetical payment used by mortgage underwriters in debt to income ratio calculations

If you need to qualify for a VA loan with a national mortgage company licensed in multiple states with no lender overlays on VA loans, please contact us at Capital Lending Network, Inc. at 800-900-8569 or text us for a faster response. Or email us at contact@capitallendingnetwork.com.. The team at Capital Lending Network, Inc. is available 7 days a week, on evenings, weekends, and holidays.


Alex Carlucci is an experienced private mortgage banker. He has been in the mortgage industry for 20 years, and prides himself of his excellent customer service and communication.

7 Comments

I was approved for usda direct loan in October but was then place on waiting list for funding. I’m trying to determine if usda guaranteed program is alternative. I have voluntary marriage separation agreement showing $1150 monthly child support $600 monthly alimony to be received for minimum of 5 more years. I’ve been collecting this as cash since 2017. I’ve gotten electronic bank transfer for past 3 months. Is 3 month history enough to get both payments included in repayment amount?

My husband would like to purchase our first home, but several years I had I have trouble with keeping up with payment, all in my name and now my husband, we have always paid his payments on time, but this left us with a problem with a home loan. We run a internet online retail/antique store. All the payments from customers went through Paypal and this was setup 20 yeas ago under my name, so the 1099k is in my name. So now my credit report show only the bad credit , so we can not show the income from our online business as income because its in my name. We have worked very hard to save 15,000 to 18,000 for the down payment but not we can’t find a loan. My husband is Native American and is a member of a federal recognized tribe and we have tried for a Section 184 and were turned down. Is there an hope for us?

Hi I have been in a lease to purchase with a new build in Mississippi. Total life rebuild from. Divorce. My builder has 15k of my money in escrow, I had a couple of charge offs that are on my credit,one I have no idea what it is and am trying to get it off my credit. I was going to convert my loan and was in underwriting when chase reported a 30 day late which I am fighting now tooth and nail. It knocked my credit score 28 points. Kicked me out of underwriting and now I have the builder wanting to sell my home because it has appreciated about 40k over my original purchase price of 303,900 and want to keep my escrow since I am not able to convert. I make 175k a year and have a DTI of around 20% or less. Its been a mother of a year, not sure how much more I can take. Can you help? Thank you

Hello,

I would like to inquire about the hero mortgage for my wife and I. We both work in the medical field, her as a registered nurse and I as a nurse assistant.
The homes we would like to look at are in the $150k range and are located in Pennsylvania. We will have 3.5% for a down payment and are hoping to wrap the closing costs into the loan. We are receiving an insurance settlement this week and will be combining it with what we have managed to save thus far. We don’t expect to be able to prove we have all the funds until the end of this week. I should be able to provide all other documents when requested.
We relocated to PA from AZ this summer and had to use our credit cards until our jobs came through, so our scores only rate as “fair” right now. We have no late payments but there is an older collection still active…
We both work nights so email might be the best method of contact. If you do call and we don’t answer, we will return your call.

Thanks in advance,
Erica Lopez

We are looking to purchase our first home, we have $20,000 grant for down payment and closing costs but due to a mistake in the past I have a lingering collection looming on my credit report that they will not remove even if we pay in full, I was wondering if it was possible to qualify for a mortgage with FHA given the circumstances and would really appreciate your help.

We have poor credit from going to graduate school for a couple years and covid shut down. We earn over $8k a month. My credit karma score is 580, but I’m told my mortgage credit score is less than 580

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