Approximately 46 million Americans have some type of student loan debt. Student loans make it possible for many people to go to college, including military and service members. But when it comes to buying a home with a VA loan, can student loans cause problems? Here’s what you need to know about student loan debt and VA home loans.
How Student Loans Impact Your VA Loan Eligibility
Many borrowers worry that having student loans will prevent them from qualifying for a home loan. But this isn’t necessarily true. Having student loans doesn’t automatically disqualify you.
Like all forms of debt, it all depends on how your student loans have been managed. Do you make your payments on time? Have you been responsible with borrowing? These are the factors that matter.
The main area where student loan debt comes into play with VA loan eligibility is your debt-to-income ratio. Lenders want to know that you’ll be able to afford your monthly mortgage payments in addition to your outstanding debt (i.e., credit card payments, auto loan payments, etc.) Therefore, they do factor in your student loan payments.
Let’s take a closer look at how this could affect your ability to buy a home with a VA loan.
When determining your VA loan eligibility, your lender will want to know your debt-to-income ratio. This number is typically determined based on your monthly income and monthly debt payments, including student loans. A high monthly student loan payment could hurt your eligibility depending on how much you make each month. Generally, VA lenders want to see a debt-to-income ratio of 41% or lower.
It’s important to know that even if your student loans are in forbearance or deferment, they could still impact your eligibility.
Missed Payments or Default
Another important factor that lenders will consider is whether you’ve missed any payments on your student loans or if you’re currently in default. Either one could impact your loan eligibility and hurt your chances of buying a home with a VA loan.
Offsetting Student Loan Payments
In certain situations, offsetting student loan payments may be possible. In order to do this, you must be able to supply certain documentation. Examples in which a lender may allow offsetting include:
- Co-signer payments: This only applies if you have a co-signer on your loan who is making payments. You must have documentation that proves that they have made payments on time for at least 12 months in a row.
- Ten or fewer remaining payments: If you have ten or fewer payments remaining and your payment amount is less than $100, then these circumstances could be used to offset your student loan debt.
When it comes to how student loans affect buying a home with a VA loan, everyone’s situation is different. If you have questions, we’d be happy to help. Please contact our office to speak to an expert.