Yes, you can buy a home in Washington State even if you have student loans. You do not need to pay them off before applying for a mortgage. The important question is not whether you have
student debt—it is how the lender must count your monthly student-loan payment when determining how much home you can afford.
How Student Loans Affect Mortgage Qualification
Mortgage lenders calculate your debt-to-income ratio, commonly called your DTI. This compares your monthly debt payments with your gross monthly income before taxes.
Your debts may include:
- Student-loan payments
- Car loans
- Credit-card minimum payments
- Personal loans
- Child support or alimony
- Your proposed mortgage payment, property taxes, homeowners’ insurance, and applicable homeowners association dues
For example, suppose you earn $6,000 per month before taxes and have the following obligations:
- Student-loan payment: $350
- Car payment: $450
- Credit-card minimums: $100
- Proposed housing payment: $2,400
Your total monthly obligations would be $3,300, producing a 55% debt-to-income ratio. Whether that ratio qualifies depends on the mortgage program, your credit, savings, down payment, and the automated underwriting results.
What If My Student Loans Are Deferred?
A common misunderstanding is that deferred student loans do not count because no payment is currently required. Mortgage guidelines generally require lenders to include a payment, even when the student loan is deferred or in forbearance.
The payment calculation depends on the mortgage program.
For certain conventional loans, the lender may use the payment shown on your credit report or student-loan statement. Under current Fannie Mae guidelines, a documented $0 payment under an income-driven repayment plan may sometimes be used as $0 for qualification. If a deferred or forbearance loan does not have an acceptable documented payment, the lender may need to use 1% of the outstanding balance or calculate a fully amortizing payment. Review Fannie Mae’s student-loan guidelines. FHA and Freddie Mac use .50% to calculate student loan payments that do not show up on your credit report.
FHA, VA, USDA, Fannie Mae, and Freddie Mac do not always calculate student-loan payments the same way. That means one mortgage program may allow you to qualify for more than another—even with exactly the same income and debt.
Income-Driven Repayment Plans May Help
If you have federal student loans, an income-driven repayment plan may reduce the monthly payment used for mortgage qualification. However, you should not change your repayment plan without first discussing the effect with both your student-loan servicer and an experienced mortgage professional.
Ask your loan officer to review:
- Your current student-loan statement
- The payment that appears on your credit report
- Whether the loan is deferred or in forbearance
- Whether you are enrolled in an income-driven repayment plan
- The estimated payment each mortgage program will use
Do this before shopping for a home. A student-loan payment calculation that is only $200 higher can noticeably reduce your maximum purchasing power.
Can I Receive Down-Payment Assistance?
Having student loans does not automatically prevent you from receiving down-payment assistance in Washington.
The Washington State Housing Finance Commission offers qualified homebuyers access to mortgage and down-payment assistance programs through participating lenders. Assistance may help with the down payment and closing costs, but buyers must meet the applicable income, credit, property, loan-program, and homebuyer-education requirements. Home buyer education is required for all of their programs and you can do that through EducateHomeBuyers.org, click on Class Schedule link on the site.
Down-payment assistance does not eliminate the need to qualify for the primary mortgage. Your student loans and other debts must still fit within the applicable underwriting guidelines.
Ways to Improve Your Buying Power
Before paying thousands of dollars toward your student-loan balance, ask a mortgage professional to run the numbers. A partial payoff may not reduce your required monthly payment enough to help you qualify. A standard prequalification does not involve and application or credit pull. You provide your income; monthly obligation payments and your debt ratio is calculated to determine what purchase price you will qualify for. Schedule a meeting (phone or Zoom) by clicking here, Jody Tiedeman, Senior Loan Officer and certified down payment assistance educator will reach out to you.
Jody will discuss your situation, and a better strategy may be to:
- Pay down a credit card with a large minimum payment.
- Pay off a smaller installment loan.
- Avoid financing a vehicle before buying a home.
- Document your correct income-driven student-loan payment.
- Improve your credit before applying.
- Consider a less expensive home or a larger down payment.
- Compare conventional, FHA, VA, and USDA financing when eligible.
- Using seller paid closing costs to buy-down your interest rate
The best choice is the one that produces the greatest improvement in your monthly debt-to-income ratio—not necessarily the one that eliminates the largest balance.
Start With Education and a Detailed Review
Student loans may reduce how much you can borrow, but they do not automatically prevent you from becoming a homeowner. Many Washington buyers successfully purchase homes while continuing to repay student debt.
Before assuming you cannot qualify, complete a homebuyer-education class and ask a knowledgeable loan officer to compare several mortgage programs using your actual student-loan documents. A detailed review can show you what you qualify for today, what assistance may be available, and which financial changes could put you in a stronger position.
Visit EducateHomeBuyers.org to learn more about Washington State homebuyer education, affordable mortgage options, and down-payment assistance.
Mortgage and assistance-program requirements can change. This article provides general educational information and is not a loan approval, commitment to lend, or financial advice.
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