If you are carrying student loans and thinking about buying a home in Minnesota, the number that matters most to your mortgage file may not be the payment you actually make each month. It is the payment the loan program says must be counted. Depending on whether your loans are in repayment, deferred, in forbearance, or on an income-driven plan, the figure that goes into your debt-to-income ratio can be higher than your real payment, the same as your real payment, or in some cases zero. Knowing which rule applies to your loan type before you apply can save you from a surprise late in the process.
What debt-to-income ratio means for a mortgage
The Consumer Financial Protection Bureau describes debt-to-income ratio, or DTI, as all of your monthly debt payments divided by your gross monthly income, meaning income before taxes and other deductions. Lenders use it as one way to measure your ability to manage the payments on the money you plan to borrow.
Student loans are part of that monthly debt total. The question is which monthly figure gets used. Every major loan program answers that question a little differently, and the answer depends heavily on what your credit report shows and what paperwork you can provide from your student loan servicer.
Why the payment on your credit report matters so much
Your credit report is the starting point. If it shows a monthly student loan payment above zero, that reported payment is usually the first number an underwriter looks at. Problems tend to start in three situations:
- The credit report shows a payment of zero, often because the loan is deferred, in forbearance, or on an income-driven plan.
- The credit report shows no payment at all.
- The credit report shows a payment that does not match your current statement.
In each of these cases, the program rules tell the lender how to calculate a qualifying payment instead. That calculated figure can be very different from what you pay today.
Conventional loans: Fannie Mae and Freddie Mac
Fannie Mae
Fannie Mae's Selling Guide (section B3-6-05) says that if a monthly student loan payment is provided on the credit report, the lender may use that amount for qualifying. If the credit report does not reflect the correct payment, the lender may use the payment shown on your most recent student loan statement.
When the credit report shows no payment or a payment of zero, Fannie Mae gives two paths:
- If you are on an income-driven payment plan, the lender may obtain documentation verifying that your actual payment is zero, and may then qualify you with a zero payment.
- For deferred loans or loans in forbearance, Fannie Mae allows the lender to use 1 percent of the outstanding student loan balance, or a fully amortizing payment based on the documented repayment terms.
Fannie Mae's guide also addresses debts paid by someone else. Under B3-6-05, if you are obligated on a student loan but another party is actually making the payments, the lender may exclude that payment, provided the file includes the most recent 12 months of canceled checks or bank statements from the other party showing on-time payments. This does not apply when the other party is an interested party to the purchase, such as the seller or real estate agent.
Freddie Mac
Freddie Mac's lender job aid on Guide section 5401.2 states that for student loans in repayment, deferment, or forbearance, the lender uses the monthly payment reported on the credit report when it is greater than zero. When the reported payment is zero, Freddie Mac directs the lender to use 0.5 percent of the outstanding balance. Freddie Mac's Bulletin 2023-18 also states that an amount greater than zero must be included in the DTI ratio for all student loans, including loans on income-driven repayment plans.
That is a meaningful difference from Fannie Mae for anyone on a zero-dollar income-driven plan, which is one reason the specific loan program matters.
FHA loans
HUD's guidance for FHA loans (Handbook 4000.1, as summarized on HUD's FHA resource center) says the lender must include all student loans in your liabilities, regardless of the payment type or status. HUD directs the lender to use the payment reported on the credit report or the actual documented payment when that amount is above zero, or 0.5 percent of the outstanding balance when the credit report shows a payment of zero.
HUD also says that if the payment used is lower than the payment on your credit report, the lender must obtain written documentation of the actual payment, the payment status, and the balance and terms from the creditor or servicer. A student loan payment may be excluded only when written documentation from the student loan program, creditor, or servicer shows the balance has been forgiven, canceled, discharged, or paid in full.
VA loans
VA's Lender's Handbook (Chapter 4) and VA Circular 26-17-02 take a different approach. If you provide written evidence that your student loan will stay deferred at least 12 months beyond the closing date, VA says a monthly payment does not need to be counted.
If the loan is already in repayment, or repayment is scheduled to begin within 12 months of closing, VA's handbook directs the lender to calculate a threshold payment equal to 5 percent of the outstanding balance divided by 12 months. Under VA Circular 26-17-02, the lender uses the payment on the credit report if it is higher than that threshold. If the reported payment is lower, the loan file must contain a statement from the student loan servicer showing the actual loan terms and payment.
For veterans and service members expecting to finish school or a deferment soon, the 12-month window is worth checking against your servicer's paperwork before you start shopping.
USDA Rural Development loans
USDA's Single Family Housing Guaranteed Loan handbook (HB-1-3555, Chapter 11) follows a structure close to FHA. For outstanding student loans, regardless of payment status, USDA says lenders must use the payment reported on the credit report or the actual documented payment when that amount is above zero, or 0.5 percent of the outstanding balance documented on the credit report or creditor verification when the payment is zero.
USDA's handbook adds two points worth knowing. First, a student loan in your name alone that someone else pays is still your legal responsibility, so the payment stays in your debts. Second, a loan in a forgiveness program remains your responsibility until the creditor releases you from liability, so that payment stays in your debts too.
How to prepare your student loan paperwork before you apply
Because so much depends on documentation, a little preparation can make the review smoother. Before you apply, consider gathering:
- Your most recent statement from each student loan servicer, showing the balance, the current payment, and the repayment plan.
- Any letter confirming a deferment or forbearance end date.
- Written confirmation of an income-driven plan and its current payment, including any recertification date.
- If someone else pays a loan for you, 12 months of their bank statements or canceled checks showing the payments.
- Any written notice of forgiveness, cancellation, or discharge.
It also helps to pull your own credit report and compare each student loan entry against your statements. If the reported payment is zero or wrong, that is useful to know before an underwriter sees it.
Frequently asked questions
Does a deferred student loan count toward my DTI?
Usually, yes, but the amount depends on the program. Fannie Mae allows 1 percent of the balance or a fully amortizing payment for deferred loans. FHA, USDA, and Freddie Mac use 0.5 percent of the balance when the reported payment is zero. VA does not count the payment if you document a deferment of at least 12 months past closing.
Can a zero-dollar income-driven payment be used?
Under Fannie Mae's Selling Guide, the lender may qualify you with a zero payment if documentation verifies the actual payment is zero. Freddie Mac requires an amount greater than zero for all student loans. FHA and USDA use 0.5 percent of the balance when the reported payment is zero.
My parents pay my student loan. Does it still count?
It depends on the program. Fannie Mae allows the payment to be excluded with 12 months of documented on-time payments from the other party. USDA's handbook says a loan in your name alone that another party pays remains your legal responsibility and must be counted.
Does being enrolled in a forgiveness program remove the payment?
Not on its own. HUD allows exclusion for FHA loans only with written documentation that the balance has been forgiven, canceled, discharged, or paid in full. USDA says loans in a forgiveness program remain your responsibility until the creditor releases you.
Which loan type is best if I have large student loan balances?
There is no single answer. The right fit depends on your loan status, your documentation, your income, and the rest of your credit profile. Comparing how each program would count your specific loans is the practical way to find out.
Talk through your student loans before you shop
If you are not sure how your student loans would be counted, Davis Monroe Financial LLC can walk through your statements with you and explain how different loan programs would treat them. Call (320) 200-5126 or email support@mydmf.com. There is no obligation, and you can bring your questions before you ever start looking at homes.