Buying a Home with Student Loan Debt: What You Need to Know
Student loan debt is a hot topic—one that many potential homebuyers worry will prevent them from purchasing a home. But here’s the good news: you can buy a house even if you have student loan debt!
In the latest episode of The Lofty Lender podcast, I sat down with mortgage expert Charles Chedester to break down the reality of student loans and home buying. We covered how lenders view student loans, different loan program calculations, and actionable strategies to improve your debt-to-income ratio (DTI) so you can qualify for a mortgage.
Do Student Loans Affect Home Buying?
Absolutely. But not in the way you might think. Many people assume that having student loan debt means they won’t qualify for a mortgage. The truth? Most buyers with student loans can still purchase a home—as long as their overall debt is managed correctly.
As Charlie and I discussed, lenders don’t just look at the total amount you owe. Instead, they focus on your monthly payment obligations and how they fit into your DTI. The lower your required payments, the more home you can afford.
How Lenders Calculate Student Loan Payments
Every mortgage program has a different way of calculating student loan debt when determining your loan eligibility. Here’s a quick breakdown:
Conventional Loans (Fannie Mae & Freddie Mac)
Fannie Mae: Uses 1% of your loan balance as the assumed monthly payment.
Freddie Mac: Uses 0.5% of your loan balance, making qualification easier.
FHA Loans
Also uses 0.5% of your total student loan balance if no payment is reported.
USDA Loans
Follows the same 0.5% rule as FHA loans.
VA Loans (For Veterans & Active-Duty Service Members)
The most lenient calculation: 5% of your loan balance is divided by 12 months, meaning significantly lower monthly obligations.
This means that if you owe $10,000 in student loans:
Fannie Mae assumes a $100/month obligation.
Freddie Mac, FHA, and USDA assume a $50/month obligation.
VA loans would assume less than $50/month.
Knowing how your loans are calculated can make a huge difference when it comes to qualifying for a mortgage.
Can You Qualify for a Mortgage If Your Loans Are in Deferment?
Yes, but lenders still have to account for future payments. Even if you’re not actively making payments, lenders assume that you will be soon. This is why most loan programs apply the 0.5% to 1% rule to deferred loans.
However, there’s an exception: if you can prove that your loans are deferred for five or more years, some lenders may not count them against you. But as Charlie and I discussed, this is extremely rare.
Ways to Improve Your Homebuying Chances If You Have Student Loan Debt
Consider an Income-Based Repayment (IBR) Plan
If you qualify for an IBR plan, your required student loan payment may be as low as $0–$10 per month.
Since lenders use the actual payment on your credit report, a low IBR payment can drastically improve your debt-to-income ratio.
Make Small, Consistent Payments
If you can, start making payments on your student loans—even if they’re in deferment.
Small payments prevent interest from piling up and help your credit score by keeping your accounts active.
Explore Refinancing Options
Some student loans have interest rates as high as 12% or more.
Refinancing to a lower rate can reduce your monthly obligation and free up more room in your budget for a mortgage.
Understand Your Debt-to-Income Ratio (DTI)
Your DTI compares your total monthly debt payments to your gross income.
Lowering your DTI (either by reducing debt or increasing income) improves your chances of mortgage approval.
Will Student Loan Forgiveness Affect Homebuyers?
Over the last few years, the government has canceled nearly $190 billion in student loan debt. This has helped thousands of borrowers qualify for homes who previously couldn’t. However, there’s no guarantee that future debt relief will happen, and waiting on student loan forgiveness is not a solid financial plan.
If you’re unsure whether you can qualify for a home today, talk to a mortgage lender—don’t assume you need to wait.
Final Thoughts: Can You Buy a Home with Student Loan Debt?
Yes, and millions of Americans do it every year. The key is understanding how your student loans affect your mortgage approval and taking proactive steps to improve your financial standing.
If you’re ready to explore your homeownership options, let’s chat! Reach out today, and let’s find the best strategy for your situation.
🎧 Want to learn more? Listen to the full episode of The Lofty Lender with #TallMoneyMan wherever fine podcasts are available.
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