Student loan debt isn’t exactly uncommon. About 70 percent of 2012 college seniors graduated with it, carrying an average debt load of nearly $30,000, according to the Institute for College Access & Success.
Even with GI Bill education benefits, veterans and active service members certainly shoulder their fair share of student loan debt, too.
Simply having student loan debt doesn’t mean your road to qualifying for a VA home loan is automatically more difficult. But staying on top of this monthly obligation is absolutely critical.
Lenders will typically need to include your student loan payment when calculating your monthly debt-to-income (DTI) ratio. They’ll also look for any signs that you’ve missed payments or defaulted on student loans, which can jeopardize your chances of securing a mortgage.
Let’s take a closer look at how your student loans can impact your chances of landing a VA home loan.
Deferment & Forbearance
With many loan programs, you’ll have a six- or nine-month “grace period” once you’re no longer taking a full course load. That’ll give you some time to prepare financially for the cycle of loan payments that may run for years or even decades depending on your specific situation.
But that grace period doesn’t register the same way for mortgage lenders. They’re going to want to know the exact amount of your pending student loan payments, and they’ll absolutely look to factor that expense into your monthly DTI ratio. Six months is a drop in the bucket compared to the 360 months that comprise a 30-year mortgage term.
Policies can vary from lender to lender, but, in general, students loans will count against your DTI ratio if they are:
- Due within 12 months of your closing date, or
- Currently in forbearance, or
- Deferred due to a financial hardship
It’s important to know that forbearance and deferment are not the same thing. Consumers typically have to request and be granted a deferment, which is a temporary delay of your principal and interest repayments. There are a host of situations where you can apply for a deferment, including:
- You’re enrolled at least half-time in college or career school
- You’re serving on active duty
- Economic hardship
- Unemployment or under-employment
The loan servicer will determine whether you qualify for a deferment. If you’re unable to make payments but don’t qualify for a deferment, the servicer can also extend you a forbearance. This is typically a 12-month period where you’ll have a reduced monthly payment or even none at all.
Details and exceptions are extensive when it comes to student loan deferment and forbearance. You can learn more at the U.S. Department of Education’s website.
Prospective homebuyers whose loans are deferred for at least 12 months beyond the closing date can generally proceed without having that debt count in their DTI ratio calculation, provided the deferment isn’t related to financial hardship.
It may also be possible in some cases to offset your student loan payment. That basically entails documenting income that essentially counterbalances the monthly debt. We could consider offsetting your loan payment if:
- A co-signor on the loan has made payments for at least the past 12 consecutive months. There can’t be any late payments in this time period, and the payments would have to be made by someone legally obligated on the loan.
- You have 10 or fewer student loan payments remaining and the payment is $100 or less
Those are relatively narrow exceptions, although they do happen. In general, you’ll need to plan on counting your student loan payment in your overall debt-to-income ratio calculation.
In addition, that monthly obligation will have an affect on your overall residual income level, which also plays a critical role in qualifying for a VA home loan.
There are a lot of ultra-specific situations that can crop up for VA borrowers with student loans. That’s a big reason why it’s important to talk with a VA loan specialist in detail about your particular situation.
You can reach a Veterans United loan specialist at 855-870-8845 or fill out this brief form and get a call back.
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