FHA and USDA Student Loan Guidelines
FHA does not currently allow you to have deferred student loan payments when qualifying for a home mortgage.
If you are still in school and not making payments on your student loans now, there are several methods that your lender can use to determine what payment will be used for qualifying purposes.
Payment Calculation Options
FHA Student Loan Guideline:
Regardless of the payment status of your student loan, your lender must use either:
- the greater of:
- 1 percent of the outstanding balance on the loan; or
- the monthly payment reported on the Borrower’s credit report; or
- the actual documented payment, provided the payment will fully amortize the loan over its term.
USDA Guaranteed Student Loan Guideline:
If you have a student loan with an income based repayment, you must use 1% of the balance.
Below you will find the guideline directly from the USDA underwriting manual:
Student loans. Lenders must include the greater of
- One percent of the outstanding loan balance. OR
- The fixed payment as reflected on the credit report.
Income Based Repayment (IBR) plans; graduated plans, adjustable rates, interest only and deferred plans are examples of repayment plans that are subject to change and do not represent a fixed payment or repayment plan. These types of repayment plans are unacceptable to represent a long term fixed payment repayment plan.
The credit report alone is not acceptable documentation. A letter must be provided from the servicer, an online account verification or an official written document to verify the payment amount.
IBR Income Based Repayment
Neither FHA or USDA currently allow you to use an IBR, or income based repayment amount when qualifying for a home loan. You must use a payment that will pay the loan off over time.
You May Not Have to Use 1% of the Balance
This is a common misunderstanding by inexperienced loan officers. In most cases, you can document your payments in one of the other ways recommended above.
You only need to use a 1% calculation if you cannot obtain any other documentation showing what your payments will be once you start repayment.
Not all loan officers know the guidelines, and not all lenders follow the same guidelines.
It is possible that your loan officer does not have any experience with the guidelines, or the lender has chosen to create their own guidelines.
Unless you’re applying for a USDA Guaranteed loan, If a lender tells you something different than what you’ve read here, don’t be discouraged.
Not all loan officers or lenders are created equal. Don’t take no for an answer!
Need a Second Opinion?
You can catch us most days taking questions through live chat on the lower right corner of this article, or answering questions in the comment section below.
Please feel free to ask any questions below, on chat, or by email.
This is a great opportunity for you to anonymously ask an experienced professional that has no financial interest in how how your question is answered.