How Student Loans Affect Your Mortgage Application

You're not alone in worrying about this. Student loans are the biggest barrier for millennial and Gen Z homebuyers.

How lenders count your student loan payment

This changed in 2021, and the rules depend on the loan type:

• On an active payment plan: They use your actual monthly payment.
• Deferred or forbearance: They use 1% of the outstanding balance or the actual payment, whichever is higher.
• Income-driven repayment (IDR): They use the IDR payment, not 1% of the balance.

That last one matters. If you have $80k in loans but your IDR payment is $200/month, that's the number they use.

The problem: deferred loans

Here's where it gets tricky. If your loans are deferred and your payment is $0, most lenders still calculate a payment at 1% of the balance. $50k in loans = $500/month in their DTI calculation.

The fix: Get on an IDR plan. Even a $0 IDR payment is better than 1% of the balance.

What you can do

• Get on an IDR plan 3-6 months before applying. Your $0 or low payment becomes the qualifying payment.
• Pay down higher-interest loans to lower the balance (helps with DTI if you're using the 1% rule).
• Consider refinancing to a lower payment, but be careful — you lose federal protections.
• Ask your loan officer to run scenarios. Some lenders handle student loans differently.

Can you buy with student loans?

Absolutely. Millions of people do it every year. The key is managing your total DTI. A $300 student loan payment plus a $1,800 mortgage payment on a $6,000/month income = 35% DTI. That's fine.

The problem comes when student loan payments push your DTI over 43-50%. That's when you need a strategy — IDR, paying down debt, or finding a lower-priced home.