Fortunately, there are ways to avoid including student loan instalments in your debt to income qualifying ratios when applying for a mortgage.
How To Avoid Student Loan Debt When Buying Your New Home:
Student loans can be a real killer when buying a home and mortgage guidelines vary from agency to agency
• Fannie Mae uses the actual payment showing on the monthly statement or credit report. If no payment is listed or the payment is $0, lenders use 1% of the balance. So, if you owe $50,000 in student loans lenders use a payment of $500.00 a month.
• Freddie Mac only requires half a percent which would cut that payment to $250.00.
• FHA and VA: use 1% of balance, or $10, whichever is higher.
• You still need to calculate a payment if your loan is in deferment or forbearance.
• Defaulted student loans will immediately kill a mortgage application.
When Are Student Loans Not Regarded During A Mortgage Application?
• When you get a letter from a student loan servicer that a $0.00 payment plan was approved prior to closing and will remain $0 through closing.
• If the loan has 10 payments or less.
• If you’re a teacher or public service individual in a student loan forgiveness program.
• If you’re an Individual with Total and Permanent Disability
• If someone else was making the payments for at least the past 12 months, like your mom, dad, or a cosigner with FHA and VA. So do your homework and avoid counting student loan payments when applying for your mortgage.