Mortgages and student loans……….

Many homebuyers, especially first time homebuyers, are struggling with trying to buy a home and deal with student loan payments. There are many potential buyers that are putting off home ownership due to their student loans.  Just because you have student loans does not mean you can’t buy a home. FHA, Fannie Mae, VA and Freddie Mac have different rules for how they deal with the student loan payments.

Lately I have had several people looking at buying that have reduced payments on student loans – IBR (income based repayment) plans. This can affect how we qualify you for a mortgage.  FHA requires that we use 1% of the balance or the actual payment – whichever is higher.  For many on IBR payment plans, that means increasing the amount you currently pay on your student loans.  If your student loan is still in deferment, we have to use 1% of the current balance. For many first time homebuyers, FHA is a very common mortgage, so it helps to be aware of how student loans play into the qualifying.

For those looking at conventional loans, Fannie Mae and Freddie Mac vary when it comes to student loans. Currently, Fannie Mae requires us to use 1% of the balance or the actual fully amortizing payment. If your loan is still deferred, we need to use 1% of the balance, we cannot omit the payment.  If the repayment terms are not known yet, we can use 1% or calculate  a payment based on the balance of the loans.  Freddie Mac allows us to use the payment on the credit report. So for those with IBR payment plans, Freddie Mac is a terrific option.  If the payment is on the credit report, that is the payment we use.  If we do not know the payment, we need to use 1% of the balance.

Freddie Mac also has a 3% down program that I have been using for several of my buyers – it allows them to get into a home with minimum down and reduced mortgage insurance if they meet the income guidelines. Combining this program with the payments on the credit report makes it easier for many home buyers to buy now rather than waiting until they pay off their student loans.

VA requires us to use the the credit report payment or calculate a payment based on the balance of the loan times 5% and divide by 12. VA also allows you to omit the payment if the repayment is deferred for a minimum of twelve months from the closing date.

USDA requires us to use 1% of the balance or the payment on the credit report – whichever is higher.  If the payment is not known, we need to use 1%. We can use a documented payment from the loan documents.

VA loans are the only one that will allow us to omit a payment if we can show that the loan is deferred long enough.

If you have student loans, don’t be afraid to look into home ownership.  Talk to your loan officer and see what options you have. For some people it may mean working to consolidate your loans into one loan, maybe look at an IBR payment  or possibly adding another person to the mortgage to qualify for more.  You may have a parent that would consider helping you purchase your home.

Leslie Vanderwerf,  NMLS ID#335509, American Mortgage & Equity Consultants, Inc, An Equal Housing Lender, NMLS#150953 – Email – Website