Student Loans

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The standard repayment plan for federal student loans put borrowers on a 10-year track to pay off their debt, but research has shown the average bachelor's degree holder takes 21 years to pay off their loans. This means that a large percentage of homebuyers, especially first-time buyers, will be on a student loan repayment schedule that may include a deferment.

The chart below compares different underwriting guidelines for conventional, government-insured and in-house financing. One major advantage of in-house financing is that student debt payments do not have to be classified as projected obligations if the borrower provides written evidence that the debt will be deferred to a period outside of the 12-month time frame.


Lender must include a monthly payment in the borrower's recurring monthly debt obligation, using one of the four options below to determine this amount.

1. 1% of the outstanding balance;
2. The actual payment that will fully amortize the loan(s);
3. A calculated payment that will fully amortize the loan(s) based on the documented loan repayment terms.
4. Loans that are deferred or in forbearance with no documentation require that 1% of the balance be considered the qualifying.
5. If the borrower is on an income-driven payment plan, obtain student loan documentation to verify the actual monthly payment is $0 to qualify the borrower with a 0% payment (FNMA only).


If the payment used for the monthly obligation is less than 1% of the outstanding balance reported on the credit report, and less than the monthly payment on the borrower's credit report, and mortgagee must obtain written documentation of the actual monthly payment, payment status, and evidence of the outstanding balance and terms from the creditor.

Regardless of the payment status, the lender must use either the greater of:

1. 1% of the outstanding balance on the loan;
2. The monthly payment reported on the borrower's credit report; or
3. The actual documented payment, provided the payment will fully amortize the loan over its term.


If a student loan is in repayment or scheduled to begin within 12 months from the date of VA loan closing, must consider the anticipated monthly obligation in the loan analysis. Should use the greater of:

1. Calculated payment at a rate of 5% of the outstanding balance divided by 12 months (example: $25,000student loan balance x 5% = $1,250 divided by 12 months = $104.17); or
2. Payment reported on credit report.




A fixed payment may be used in the debt ratio when the lender retains documentation to verify the payment, interest rate, and repayment term are fixed. There must be no future adjustments to the terms of the student loan payments.

Non-fixed payment loans: Payments for deferred loans, Income-Based Repayment (IBR), Graduated, Adjustable, and other types of repayment agreements that are not fixed cannot be used in the total debt ratio calculation. 1% of the loan balance reflected on the credit report must be used as the monthly payment.

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In-House Financing

Debt payments, such as a student loan scheduled to begin or come due within 12 months of the mortgage loan closing, must be included by the lender as anticipated monthly obligations during the underwriting analysis. Debt payments do not have to be classified as projected obligations if the borrower provides written evidence that the debt will be deferred to a period outside the 12-month time frame. Balloon-payment notes that come due within one year of loan closing must be considered.

Exclusions: Student loan payments may be excluded with written evidence that the debt will be deferred for a period outside the 12-month time frame. The underwriter should determine the repayment amount based on the actual documented payment. If the borrower is following an income-driven repayment plan ("IDR"), the lender must use the IDR plan monthly payment amount.

Motto Mortgage Borrowers First has access to several specialty mortgage loan products offered through various wholesale lenders.