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How Do Student Loans Affect Your Mortgage Loan Approval?

May 17, 2014


Great news! If you are a recent college graduate and landed a full time job W2 salary/hourly paid position in the same line of studies you may qualify for a home loan.  The 2 years of employment requirement or tax filings is not required.  The requirements will be:

  • 30 days of paycheck stubs showing YTD totals
  • Executed excepted offer letter from your employer on their letterhead
  • Verification Of Employment

Student loans are reported on a credit report just as any other payment obligation. In many instances, the student loan payment as deferred, extended out into a future date when the payments begin if they have not already. Lenders are required by law to account for all material debt known to them in the supporting documentation a borrower provides in anticipation of acquiring a home loan. Conventional loans requires the debt to income ratios to be under 50% and FHA is 56.99% or less.  Conventional will not omit the proposed monthly payments, but if the student loans are not deferred out for 12 months or more from the funding of the loan then the payments cannot be omitted from the ratios.  Therefore, many people are forced to get a FHA loan.

If you have 4 separate student loans totaling $50,000, each with a payment of $75 per month. That translates to a $375 per month obligation, which can reduce borrowing power by upwards of $50,000!

If a student hopes to someday buy a home, he or she would be well advised to avoid private lenders when obtaining a student loan. Private lenders charge significantly higher rates of interest and can contain shorter-term amortizations inflating the payment obligation, which is what the mortgage lender will use when trying to qualify you for a home loan.

Good advice:

  • If you have multiple student loans, consolidate them into one loan to reduce total student loan payments. Try your personal bank or find one online like or
  • If student loans are consolidated and they don’t report that way on the credit report, the lender has to use the information they have showing the higher payments because that’s what the credit report reveals, unless further supporting documentation can be provided to show each loan has been consolidated into one new debt.
  • It is very important not to be late on your payments. Ignoring this could result in your application being denied for a government loan. Government programs are strict about delinquencies on federal debt, which is what a student loan is.
  • If student loans report as deferred on your credit report, get the specific payment amounts from the servicer or a payment letter from the servicer stating an approximation of what the payments will be when they come due and payable.
  • If in default you will need to get the account current. This will also help your rebuild your credit.
  • If a payment letter cannot be obtained, the lender will use 2% of the principle balance to determine appropriate payment obligation for qualifying.
  • If any student loans are paid off in full, but your credit report shows there is a current payment obligation, provide supporting documentation showing that it has been paid off in full to the mortgage company.

Get pre-approved today! It is the best time to buy while rates are still low and home values continue to rise.

Email us your loan scenario at or before you get a Hard Money Loan, give us a call at 800-385-3657.

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