That college degree may have helped get a job, but the student loan debt can be a lingering burden. Therefore, becoming a homeowner seems like a daunting task. But, buying a house with student loans, deferred or income based repayment, is easier now because of updated guidelines. Fannie Mae student loan guidelines allow first time home buyers to buy a home with low down payment and affordable payments. Even buying a second home or investment property with student loans is very possible.
Do Student Loans Affect Getting a Mortgage?
Most debts are pretty cut and dry. You have a payment, it needs to be counted in the debt to income ratio. Although, student loan payments can be tricky. Student loan payments may be fixed, adjustable, or even zero. So, it is the payments that are low, graduated, or zero that create complications.
Buying a House With Deferred Student Loans
For instance, deferred payments do not require current payments for some period of time. Yet, mortgage loans require a payment to be used when buying a house with student loans. Usually, every home loan requires a qualifying payment at 1% of the student loan balances. One exception is that VA home loans will use zero payment if deferred greater than one year after closing. If deferred less than a year, VA has a unique formula that makes it easier to qualify than the 1% calculation.
IBR and Mortgage Qualification
Where qualifying to buy a house with student loans gets complicated is when income based repayment is involved. Student loan payments may even be as low as zero per month. Have you been denied a mortgage because of IBR student loan payments? Maybe using the 1% of the balances is causing an issue? Perhaps you as a buyer are disqualifying yourself because of something you read?
Most mortgage programs are going to require 1/2% to 1% of the balances as a qualifying payment. FHA requires 1% plus USDA and Freddie Mac loans allow 1/2%. Luckily, Fannie Mae conventional loans allow lenders to use the actual student loan payment. Even if the payment is zero!
So, how does this work in your favor?
How to Buy a House with Student Loans
Although there are other solutions, we are going to focus on Fannie Mae student loan solutions. Each of these Fannie student loan guidelines may be used to buy a primary residence, second home, or rental property. Remember, not just first time home buyers have student loan payments. Some either go to college later in life, still have college debt from a while back, or have cosigned for their children. Either way, these Fannie Mae guidelines provide the following advantages…
Why You Need to Consider Fannie Mae Loan Solutions
- Up to 50% debt to income ratio
- Use actual IBR payment (including $0 IBR)
- Down payment
- 3% minimum for primary residence
- 10% minimum for second homes
- 20% minimum for rental property
- Affordable & cancellable PMI
- Gift of equity when buying from family
- Cosigners allowed and not required to live in the home
- Finance a condo, town home, single family detached home, modular, manufactured, and more
What are the Requirements for a First Time Home Buyer Loan?
When it comes to a Fannie Mae first time home buyer (or repeat buyer), the borrowers need to meet income, credit, and asset requirements. As far as the down payment goes, it may be as little as 3% of the sales price. Yet, the down payment when buying a house with student loans may come from a gift or even down payment assistance.
Down payment assistance that we offer through the Chenoa Fund allows a buyer to purchase with no down payment. Furthermore, other DPA products we provide could result in no money down or at least very close to no down money. So, having own funds for down payment should not be a hurdle.
Credit scores may go as low as 620 for a Fannie Mae loan, but the higher the score, the better the chance of loan approval. Also using the 3% down payment feature usually requires a maximum 45% debt to income ratio. Fortunately, using the IBR student loan payments and the low down payment requirement makes it easier when buying a house with student loans.
Then add on the other benefits like flexible PMI and other areas mentioned above, it helps make homeownership more affordable and possible.
Buying a House With Student Loans Success Story
We recently closed a purchase that is a perfect example of how Fannie Mae guidelines make homeownership possible. Both husband and wife have IBR student loans, own a business, plus wanted to purchase their first home. Another important area included a low down payment and their income was over household income limits for HomeReady and Home Possible purchase programs. Other low down payment mortgage student loan guidelines created a debt to income ratio issue. Although, our Fannie Mae 3% down payment program helped make this happen. The following Fannie Mae student loan benefits helped make this purchase happen…
- 3% down payment
- Gift funds used for closing
- Used $0 IBR payments plus other IBR payments that were very low
- 45% debt to income ratio
- Great interest rate, low PMI compared to FHA
The buyers did everything that was asked of them and now they are homeowners!
Buying a Second Home or Rental with Student Loan Debts
It isn’t just the recently graduated young adults that owe student loan debt. Even the seasoned homeowner looking to buy another home could easily have student loans. Senior citizens go back to school or cosign for others. Basically, the same guidelines for first time buyers could help in purchasing a vacation home or investment property. With the only difference being a higher down payment. It is even possible to build a vacation home with a low down payment construction loan.
Does buying a house with student loans sound impossible? It isn’t. If you have documentable income, a good credit score, and a desire to buy a home, reach out for a solution now.