Routing # 256078446
MORTGAGE KNOWLEDGE CENTER
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MORTGAGE
Student Loans and Mortgages
What you'll learn: Mortgage options for borrowers with student loan debt.
EXPECTED READ TIME: 4 MINUTES
December 4, 2023
If you’re interested in purchasing a home, you may be wondering how your student loans affect your chances of getting a mortgage. Good news — becoming a homeowner doesn't necessarily require being completely debt-free. However, your debt-to-income ratio (DTI) is a crucial factor that lenders consider when determining your eligibility for a mortgage loan. It's important to understand that your debt is viewed as an obligation that must be repaid and your credit history influences the perceived risk in lending to you. Lenders want to know that you'll manage your payments responsibly and have sufficient funds for repayment.
If you’re concerned that your student loans will prevent you from purchasing a home, don’t be. It’s important to keep in mind that your DTI ratio is just one factor that the underwriting process looks at when determining your mortgage eligibility. There are options and loans available for you to utilize, even if you haven’t completely paid off your student loans yet.
FHA student loan guidelines
One of the best mortgage options available to student loan borrowers is an FHA loan, especially for those who are first-time buyers. These loans are insured by the Federal Housing Administration and require a down payment of just 3.5%. As is the case with other loans, FHA mortgage guidelines for student loans will consider your loans to be your debt obligations. That means your lender will assume the monthly payment amount from your credit report or student loan statements.
Typically, FHA-approved lenders will prefer a DTI ratio of 43% or lower. Though they may be more flexible if you have a higher credit score, good payment history, and extra cash reserves.
FHA deferred student loans
Let’s say your student loans are in deferment or forbearance, or you’re on an income-driven repayment plan. In those cases, a mortgage lender is obligated to factor in either 0.5% of the remaining balance of your student loans (if your current monthly payments equal $0) or consider the actual payment as it’s indicated on your student loan statement.
Do student loans affect credit?
As long as you’re making full payments on time, student loans can actually help you boost you credit score and showcase your responsibility as a borrower to lenders. But, just like other types of loans, missteps can hurt it.
Your credit score starts to drop after a lender reports a late payment to one or all three of the major credit bureaus. The length of time before it’s reported depends on the type of student loan you have:
- Federal servicers will wait at least 90 days to report late payments.
- Private lenders are able to report them after 30 days.
Note though, lenders will charge their late fees as soon as a payment is missed. If your lender does report a late payment, commonly referred to as a delinquency, it will remain on your credit report for seven years. The longer your payment remains overdue, the worse the damage is to your credit score. For example, a federal student loan will go into default after 270 days of no payments. Default is an even more critical hit to your score than a 30- or 90-day delinquency.
One thing you can do to ensure your payments are paid on time and remain on track is to set up automatic payments via the lender’s website. In cases where money is tight, it’s worth considering asking your lender about lowering or pausing monthly student loan payments. There are a few options for these situations, like:
- Income-driven repayment plans
- Modified payment plans (if you have private loans and the lender offers this option)
- Enrolling in deferment or forbearance for a temporary pause in payments
It does not hurt your credit score to change the terms of your loan. As long as the payments are handled as agreed, your credit shouldn’t suffer.
Student loans don’t have to limit your options or hinder your journey to becoming a homeowner. In fact, they can be a way for borrowers to prove their financial responsibility to lenders and help you establish a solid record of managing credit.
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Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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