How does Student Loan Debt impact my debt ratio?

The impact your student loan debt will have on your chances of getting a home mortgage loan has changed greatly over the years. It used to be that whatever student loan debt you had didn’t necessarily harm your chances of getting a loan, especially if you’ve deferred your loans for a few years. These days, things are very different.

These days, whether you’ve deferred your loans or not, your student loan debt will undoubtedly have to be factored into your debt-to-income ratio and therefore can be a make-or-break factor in whether you get approved for a mortgage or not. The actual amount of your student loan debt that will be factored in to your debt-to-income ratio ultimately depends on the mortgage product. See below:

• Fannie Mae (Conventional): Regardless of your deferment or repayment status, you must use the larger figure of the following when figuring out your student loan’s impact on your debt-to-income ratio: either 1% of the balance or the actual documented payment. (*You can only use the documented payment if you can prove that the monthly payment is sufficient to pay the loan in full based on the loan term/amortization schedule.)
• Freddie Mac (Conventional): Regardless of deferment or repayment status, you must use the documented payment, even if it’s less than the 1% rule.
• FHA: Regardless of deferment or repayment status, you must use the larger figure of the following when figuring out your student loan’s impact on your debt-to-income ratio: either 1% of the balance or the actual documented payment. (*You can only use the documented payment if you can prove that the monthly payment is sufficient to pay the loan in full based on the loan term/amortization schedule.
• USDA: You may use either the documented payment or 1% of balance if not documented. You cannot omit deferred loans.
• VA: Contact a mortgage expert for more info.

To learn more about specific mortgage requirements, be sure to speak with an experience mortgage broker.