Deferred student loans and income-driven repayment plans are common scenarios that can impact your ability to purchase a home. A deferred student loan account allows the borrower to postpone making monthly payments for some time. Income-driven repayment plans allow borrowers to have a monthly payment that is based on their family size and income. Both factors can affect your mortgage application and whether you are approved.

How Do Deferred Student Loans Affect My Ability to Purchase a Home?

A student loan that is in deferment will not be excluded from your debt-to-income ratio (DIT). If the student loan is in deferment and the credit report reflects a monthly payment, the lender may use this payment in the borrower’s application to qualify. If the credit report does not reflect a monthly payment, the minimum monthly payment, included in your DTI calculation, will depend on the type of loan you are applying for. If you are applying for a conventional loan, the lender must use 1% of the outstanding student loan balance or a fully amortized payment using the documented loan repayment terms for your monthly payment amount. If the borrower is applying for an FHA loan, the lender can you .5% of the outstanding student loan balance or the monthly payment reported on the credit report.

Does an Income-Driven Student Loan Repayment Plan Affect My Mortgage Application?

An income-driven repayment (IDR) plan may affect the way that lenders determine your monthly loan obligations. Your monthly loan payments under an IDR plan are determined by your family size and income, which could mean smaller payments each month than under a traditional repayment plan. When determining your DTI, most lenders will use the monthly payment amount on the credit report. It's critical to talk to your loan officer about your IDR strategy and find out how they will evaluate it in the mortgage approval process.

The mortgage approval process with deferred student loans or income-driven repayment plans requires careful consideration and communication with your home lender. The expert staff at Standard Mortgage (NMLS#:44912) are here to help with all your questions and mortgage needs.