How to Buy a Home with Student Loan Debt. VA New Policy Can Help!

Student loan debt and payments play a large role in buyers qualifying for a mortgage loan.  With escalating costs of a college education, many graduates carry the heavy burden of debt.  Luckily there are many programs providing student loan payment relief.  But when it comes to mortgage qualification, the programs are often not recognized.  VA home loans, available to qualifying military veterans or active service members, are the most flexible when it comes to student loan debt.  So Veterans can take advantage of these flexible student loan guidelines to purchase a new home.

The Veterans Benefits Administration in the Department of Veteran Affairs recently announced a rule clarification in student loan debt - How to buy a home with a va loanregards to student loan debt.  Additionally, new policy provides guidance for student loans in repayment.  This includes loans which will be in repayment within 12 months.  Check out how VA loans help service members, Veterans, or surviving spouses with student loan payments.

How does VA treat deferred student loan debt?

Deferred student loan payments mean payments are not required for a period of time.  Guess what?  VA loans recognize the zero required payment under certain circumstances.  VA guidelines state the following:

Student loan payments which are deferred greater than 12 months after the mortgage closing date may be disregarded!

In order to exclude the student loan payments, proof of the deferment period is required.  Whether the student debt is for the borrower or co-signed for family, this exclusion of payments will help tremendously.  Learn student loan payment options at Navient or Sallie Mae.

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So do you have other issues on your VA qualification?  Read this Creative VA Loan Solutions article.

How Income Based Repayment Student Loan Debt Affects VA Approvals

A very popular payment plan for student loans involves Income Based Repayment known as IBR.  These payments are often much lower than the fully required payment.  Most mortgage programs will not count the IBR payments and VAstudent loan debt and VA loans has a new policy in regards to these loans.

So if a student loan debt is not deferred over 12 months after the closing date, VA has certain requirements.  Here are the VA requirements to calculate the debt ratio and residual income.

Must use the higher of…

  • Payment on credit report
  • 5% of outstanding balance divided by 12 months

BUT, if the borrower is able to document the credit report payment is the fully amortized payment, then using this payment is allowed.  Fully amortized means the payment will fully pay off within the loan term.  Basically the actual payment may be used rather than the 5% calculation.

Are you using the VA Benefits site?  This is a must for any service member or Veteran.

How to Calculate the 5% Student Loan Payment

[av_table purpose=’tabular’ caption=’How to Determine Payment on Student Loans Using 5% Rule’ responsive_styling=’avia_responsive_table’] [av_row row_style=’avia-heading-row’][av_cell col_style=’avia-center-col’]Student Loan Balance[/av_cell][av_cell col_style=’avia-center-col’]5% of Balance[/av_cell][av_cell col_style=’avia-center-col’]Monthly Payment to Use[/av_cell][/av_row] [av_row row_style=”][av_cell col_style=’avia-center-col’]$25,000[/av_cell][av_cell col_style=’avia-center-col’]$1,250[/av_cell][av_cell col_style=’avia-center-col’]$104.17[/av_cell][/av_row] [av_row row_style=”][av_cell col_style=’avia-center-col’]$50,000[/av_cell][av_cell col_style=’avia-center-col’]$2,500[/av_cell][av_cell col_style=’avia-center-col’]$208.34[/av_cell][/av_row] [/av_table]

Therefore the payments in the chart give a good idea of payments required by VA.

Before checking Zillow or Realtor for your dream home, get approved financing first!  So the important thing to remember if you have student loan debt and are looking for a VA loan, talk to our VA loan experts.  We will get you the correct answers.

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Written By: Russell Smith

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