Back / Your Comprehensive Guide to Home Buying with Student Loans

Your Comprehensive Guide to Home Buying with Student Loans

|Mortgage|October 18, 2023
Your Comprehensive Guide to Home Buying with Student Loans

In today's fast-paced world, owning a home is a dream that many aspire to achieve. However, if you're a student loan borrower, you might have concerns about how those loans affect your ability to buy a home. In this informative blog post, we will walk you through the intricate world of home buying with student loans. Our mission is to provide you with trustworthy, borrower-centric, educational, and approachable guidance, simplifying complex terms and empowering you to make informed decisions.

Understanding Debt-to-Income Ratio

One of the key factors in determining your eligibility for a home loan is your debt-to-income ratio. This ratio helps lenders assess your ability to handle additional debt while managing your existing financial commitments. It's essential to understand that the debt-to-income ratio has two components: the front-end ratio and the back-end ratio.

Front-End Ratio:

  • The front-end ratio is calculated by dividing your housing-related expenses (including your mortgage, property taxes, and insurance) by your monthly income.
  • Lenders typically aim for a front-end ratio of around 28%.

Back-End Ratio:

  • The back-end ratio considers all your monthly debt payments (credit card, student loans, car loans, etc.) in addition to your housing expenses.
  • For most loans, the back-end ratio should not exceed 43% to 46% of your monthly income.

Reducing Your Debt-to-Income Ratio

To enhance your chances of being approved for a mortgage, you'll want to reduce your back-end ratio. This means lowering your monthly debt payments relative to your income.

Student Loans and Their Impact

Student loans are a common concern for many prospective homebuyers. Here's how they affect your debt-to-income ratio:

The Traditional Approach:

  • Lenders often use the actual monthly payment you make towards your student loans in the calculation.
  • A significant monthly student loan payment can limit the amount you can borrow for a mortgage because it causes your backend debt to income ratio to be too high. .

An Alternative Approach:

  • There are legal methods to change your student loan payment in a way that benefits your home-buying goals.
  • Entering an income-driven repayment plan (e.g., Save, Pay As You Earn, IBR, ICR) can significantly reduce your monthly student loan payment.
  • Under specific conditions, your payment can even be reduced to $0, depending on your family size and income.
  • With a $0 student loan payment, you can qualify for specific mortgage products, such as Fannie Mae loans, which accept a $0 payment. Other mortgage products do not accept a $0 student loan payment.

Understanding How Mortgage Products Treat Student Loans

Different mortgage products treat student loans in various ways:

Fannie Mae:

  • While in deferment or forbearance, Fannie Mae counts 1% percentage of the principal balance when calculating your debt-to-income ratio, which can result a higher student loan payment counting towards your debt ratio.
  • On IDR plans, in repayment, Fannie Mae takes monthly payments, and if the monthly payment is $0, counts that as your student loan payment in the debt to income formula.

Freddie Mac and FHA:

  • These agencies tend to use 0.5% percentage of your student loan principal balance in their calculation when your student loan are not in repayment.
  • On IDR plans, takes a monthly payment, but if the monthly payment is $0, takes 0.5% of the total loan balance. If in deferment/forbearance, they also takes 0.5% of your total student loan balance.

Reducing Your Student Loan Impact

To improve your chances of approval, request that lenders use your student loan payment, rather than the principal balance, in their calculations, in the event your payments are actually lower. This could help you qualify for a higher mortgage amount. It makes a big difference for borrowers. If you are in school continuing your education, there are ways to ask to be taken out of payment pause, so you can qualify using a lower payment.

Take Control of Your Home-Buying Journey

In the competitive world of home buying, understanding your financial situation is paramount. By managing your student loans wisely and working with knowledgeable professionals, you can navigate the path to homeownership with confidence.

If you're looking for personalized guidance tailored to your unique financial situation, we're here to help. Visit to create an account and receive a free analysis of your student loan plan. Our mission-driven approach, combined with modern technology, ensures that you get the right documentation to close with a lower student loan payment.

Don't let student loans deter you from achieving your dream of homeownership. We provide trustworthy, borrower-centric, educational, modern, and approachable solutions to empower you in your journey toward owning a home. Remember, your financial goals are within reach, and we're here to help you make them a reality.

If you found this blog post helpful, please like, subscribe, and share it with other student loan borrowers who are interested in buying a home. Together, we can make informed financial decisions and achieve our homeownership dreams.

Any inquiries can be made to

Need help with what options are best for you? Get in touch with us.

Get the latest Student Loan Pro tips. We'll give you the best strategies and keep you up-to-date on loan programs. We keep our communications short and helpful. Sign up for our weekly protips now!