If you have student loans, you may have wondered:
“Do I need to pay off my student loans before I can buy a house?”
For many borrowers, the answer is no.
Having student loan debt doesn’t automatically prevent you from qualifying for a mortgage. What matters is how the student loan payment is counted along with your income, other debts, credit, down payment, and the mortgage payment you’re trying to qualify for.
In fact, someone with $75,000 in student loans could potentially qualify for a mortgage while someone with $15,000 in student loans has difficulty qualifying.
Why?
Because mortgage qualification isn’t based simply on how much student loan debt you have.
Let’s look at how it works.
Quick Answer: Can You Buy a Home With Student Loan Debt?
Yes. You can potentially qualify for a mortgage while you still have student loans.
Mortgage lenders generally consider the monthly student loan obligation when calculating your debt-to-income ratio rather than simply disqualifying you because you have an outstanding student loan balance.
The amount lenders must use can depend on the mortgage program, what appears on your credit report, your repayment plan, and whether the student loan is currently in repayment, deferment, or forbearance.
That means the first step isn’t necessarily paying off your student loans.
It’s determining what monthly student loan payment will be used when you apply for a mortgage.
How Student Loans Affect Mortgage Qualification
When you apply for a mortgage, one of the calculations your lender looks at is your debt-to-income ratio, commonly called DTI.
In simple terms, DTI compares certain monthly debt obligations with your qualifying monthly income.
For example, your debts might include:
- Car payments
- Credit card minimum payments
- Student loans
- Personal loans
- Certain support obligations
- Your proposed housing payment
The student loan balance certainly matters, but for DTI purposes, the monthly obligation used in underwriting is particularly important.
That’s why two people who each owe $50,000 in student loans don’t necessarily have the same mortgage qualification.
Their qualifying monthly student loan payments could be different.
Your Student Loan Payment Matters More Than You Might Think
Consider two hypothetical buyers.
Buyer A
Student loan balance: $50,000
Qualifying monthly student loan payment: $250
Buyer B
Student loan balance: $20,000
Qualifying monthly student loan payment: $400
Even though Buyer A owes considerably more, Buyer B has the larger monthly obligation affecting DTI.
Of course, a mortgage approval involves much more than student loans alone, but this illustrates why looking only at the outstanding balance doesn’t tell us whether you can buy a home.
Different Mortgage Programs Can Treat Student Loans Differently
This is where student loans get more interesting.
There isn’t necessarily one calculation used for every type of mortgage.
Conventional, FHA, and VA financing have their own guidelines for determining the student loan payment used in qualification.
Conventional Loans
For a Fannie Mae conventional loan, if the credit report provides a monthly student loan payment, the lender may generally use that amount for qualification.
If the credit report doesn’t reflect the correct payment, documentation from the student loan servicer may be used under applicable guidelines.
If the credit report shows a $0 payment or doesn’t provide a monthly payment, additional rules apply.
For example, under current Fannie Mae guidelines, a borrower on an income-driven repayment plan may potentially qualify using a documented $0 monthly payment if appropriate student loan documentation verifies that $0 is the actual payment.
For deferred loans or loans in forbearance where the credit report doesn’t provide a monthly payment or reports $0, Fannie Mae generally requires the lender to use either 1% of the outstanding balance or a fully amortizing payment based on the documented repayment terms.
Other conventional guidelines may differ, so your lender needs to evaluate the specific loan you’re using.
FHA Loans
FHA handles the situation somewhat differently.
Under FHA guidelines, outstanding student loans generally must be included in the borrower’s liabilities regardless of payment status.
If the credit report shows a monthly payment greater than $0, the lender generally uses the reported payment or an appropriately documented actual payment.
If the credit report reports a $0 monthly payment, FHA generally uses 0.5% of the outstanding student loan balance as the monthly obligation.
For example:
$50,000 student loan balance × 0.5% = $250 per month
That $250 would be included in the qualifying calculation in this simplified example.
VA Loans
VA loans have another set of rules.
Under VA guidance, student loans deferred for at least 12 months beyond the closing date may not need a monthly payment included in the loan analysis when properly documented.
If the student loan is in repayment—or scheduled to begin repayment within 12 months of closing—the lender generally evaluates the required student loan obligation according to VA guidelines.
This is a good example of why you shouldn’t assume that because one lender or mortgage calculator told you your student loans create a problem, every financing option will produce the same result.
What If My Student Loan Payment Is $0?
This is an especially important question for borrowers on income-driven repayment plans.
A $0 student loan payment does not automatically mean every mortgage program will qualify you using $0.
As discussed above, Fannie Mae guidelines can allow a documented $0 payment in certain income-driven repayment situations.
FHA generally handles a reported $0 payment differently and uses 0.5% of the outstanding balance.
So imagine you owe $80,000.
Under a calculation using 0.5% of the balance:
$80,000 × 0.5% = $400 per month
That’s very different from using $0.
And that difference can affect how much mortgage you qualify for.
What If My Student Loans Are Deferred?
Don’t assume deferred student loans simply disappear from mortgage qualification.
The treatment depends on the mortgage program.
For example, Fannie Mae has specific qualifying requirements for deferred loans, while FHA generally requires outstanding student loans to be considered regardless of payment status.
VA may permit a different treatment when the student loan is documented as deferred for at least 12 months beyond the mortgage closing.
If your student loans are deferred, tell your lender early.
It’s much better to determine the appropriate payment before you start making offers.
How Student Loans Affect Your Debt-to-Income Ratio
Let’s use a simplified example.
Suppose you earn:
$7,000 per month in qualifying gross income
And you have:
Car payment: $450
Credit card minimums: $150
Student loan payment used for qualification: $300
Before we even add the proposed mortgage payment, you have:
$900 per month in recurring obligations
Now suppose the proposed qualifying housing payment is $2,600.
Your total obligations in this simplified example become:
$3,500 per month
That’s why the student loan payment can matter.
If the qualifying student loan obligation were $600 instead of $300, that’s another $300 being included in the DTI calculation.
That could affect the mortgage amount for which you qualify.
Should You Pay Off Your Student Loans Before Buying a House?
Not automatically.
This is where I would be careful about following generic financial advice.
Suppose you have $30,000 saved and owe $20,000 in student loans.
You might think:
“I’ll pay off the $20,000 first. Then I’ll apply for a mortgage.”
But doing that could leave you with only $10,000 available for:
- Down payment
- Closing costs
- Emergency reserves
- Moving expenses
- Repairs
- Furniture
- Other expenses after closing
Depending on your situation, paying off the student loan might improve qualification.
But it might also use cash that would have been more valuable elsewhere in the transaction.
Before making a large student loan payoff specifically to qualify for a mortgage, have your lender run the numbers.
You may discover that you don’t need to pay it off at all.
Paying Down the Wrong Debt Could Be a Mistake
The same idea applies if you’re trying to improve your DTI before buying.
Suppose you have:
Student loan: $40,000 balance / $200 qualifying payment
Car loan: $8,000 balance / $500 monthly payment
If your objective is improving mortgage qualification, simply paying down the debt with the largest balance may not produce the biggest improvement.
The monthly obligation being eliminated or reduced can be extremely important.
That doesn’t mean you should automatically pay off the car either.
It means you should run the mortgage numbers before moving large amounts of money around.
Student Loans Aren’t the Only Part of Qualification
It’s also important not to become overly focused on one debt.
Mortgage qualification considers the broader financial picture, which can include:
- Income
- Employment
- Credit history
- Credit score
- Assets
- Down payment
- Other monthly debts
- Property taxes
- Homeowners insurance
- HOA dues
- Mortgage insurance
- Loan program
Student loans are one part of that picture.
Having them doesn’t automatically mean you aren’t ready to buy.
What If Student Loans Are Preventing You From Qualifying?
If the numbers don’t work today, that doesn’t necessarily mean homeownership is years away.
Your lender can help identify what’s creating the problem.
Maybe your DTI is slightly too high.
Maybe a different mortgage program handles the student loan obligation differently.
Maybe paying off or reducing another debt would have a greater impact.
Maybe you need a little more income history.
Maybe your target housing payment needs to come down.
Once you know the actual obstacle, you can create a plan around it.
That’s much better than simply deciding:
“I have too much student debt to buy a house.”
Don’t Wait Until You’re Under Contract to Discuss Student Loans
If you have significant student loan debt, bring it up during the pre-approval process.
Your lender may need documentation showing:
- Current balance
- Current payment
- Repayment plan
- Loan status
- Terms of repayment
- Documentation from the student loan servicer
Getting that information early helps determine the payment that needs to be used for mortgage qualification.
Then you can shop for homes using a much more realistic price and payment range.
The Bottom Line
You do not necessarily have to pay off your student loans before buying a home.
The more important question is:
How will my student loans be treated when I apply for the mortgage I’m considering?
Different mortgage programs can calculate student loan obligations differently, particularly when loans are deferred, in forbearance, or on an income-driven repayment plan.
Before paying off debt, moving money out of savings, or assuming you can’t qualify, have your actual numbers reviewed.
You may be closer to buying a home than you think.
Frequently Asked Questions
Can I get a mortgage if I have student loans?
Yes. Having student loan debt doesn’t automatically prevent you from qualifying for a mortgage. Your student loan obligation is considered along with your income, other debts, credit, assets, proposed housing payment, and applicable mortgage guidelines.
Do I need to pay off my student loans before buying a house?
Not necessarily. Paying them off may help in some situations, but it could also reduce the cash you have available for your down payment, closing costs, reserves, and other expenses. Have your lender run the numbers before making a large payoff specifically for mortgage qualification.
How do student loans affect my debt-to-income ratio?
The qualifying monthly student loan obligation is generally included with your other applicable monthly debts when calculating DTI. The payment used can depend on your mortgage program and student loan status.
Can a $0 student loan payment be used when qualifying for a mortgage?
Sometimes. For example, current Fannie Mae guidelines can allow a documented $0 payment for certain borrowers on income-driven repayment plans. Other programs may require a calculated payment instead. FHA generally uses 0.5% of the outstanding balance when the monthly payment reported on the credit report is $0.
How does FHA calculate student loan payments?
Under current FHA guidance, if the credit report reports a monthly payment greater than $0, that payment or an appropriately documented actual payment can generally be used. If the reported monthly payment is $0, FHA generally uses 0.5% of the outstanding student loan balance.
Can I buy a home if my student loans are deferred?
Potentially. Deferred student loans don’t automatically prevent mortgage qualification, but the treatment varies by loan program. Some programs still require a calculated monthly obligation even though you’re not currently making payments.
Does VA count deferred student loans?
VA guidelines may allow the student loan payment to be excluded when written evidence shows that the debt will remain deferred for at least 12 months beyond the date of closing. Different rules apply when repayment is underway or scheduled to begin sooner.
Does having a large student loan balance mean I can’t afford a house?
Not necessarily. The balance alone doesn’t determine mortgage eligibility. Your qualifying payment, income, other debts, credit, assets, proposed housing payment, and loan program all play a role.
Should I pay off my car or student loan before applying for a mortgage?
Don’t make that decision based solely on which balance is larger. If your goal is improving mortgage qualification, the monthly payment associated with each debt can be particularly important. Ask your lender to compare the scenarios before paying off either debt.
What’s the first step if I have student loans and want to buy a home?
Get pre-approved and make sure your lender reviews your student loans specifically. Provide your current student loan information so the lender can determine what monthly obligation must be used and how it affects your purchasing power.
For accuracy, the key guidelines in this article reflect current Fannie Mae, FHA/HUD and VA guidance. Fannie Mae currently permits a documented $0 income-driven student-loan payment in qualifying circumstances; FHA generally uses 0.5% of the balance when the reported payment is $0; and VA provides special treatment when repayment is deferred at least 12 months beyond closing.
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