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Securing a Mortgage with Student Loan Debt

In response to the Covid-19 emergency, eligible federal student loan interest rates were set to 0% and loan payments were paused until September 1, 2023.

Starting on September 1, 2023 federal student loan borrowers can expect their interest to begin accruing and payments will be expected on October 1, 2023. Loan forbearance began in March of 2020 and many people took this as an opportunity to pay down substantial principal over the last three years, saving them thousands of dollars in future interest payments. But for the many others who weren’t in the financial position or chose not to make payments, their renewed student loan bills may come with payment shock.

Even if you have outstanding student loan debt, there is an array of mortgage programs you may qualify for.

The Supreme Court is expected to rule on the Biden administration’s up-to-$20,000 federal student debt cancellation plan sometime in June of 2023. If ruled in favor of loan forgiveness, those eligible must have federal student loans and earned less than $125,000 annually (or $250,000 per household) in the 2020 or 2021 tax year. Borrowers who meet that criteria could receive up to $10,000 in debt forgiveness or up to $20,000 if you also received a Pell Grant during your education.

Prepare for Repayments

It is important to note that Congress recently passed a law preventing further extensions of the student loan payment pause and it is in your best interest to lock in a plan to ensure you are ready to make a payment come October 1st. Below are simple options available to you to alleviate the stress of student loan repayments.

Reach out to your Loan Servicer

Much like the mortgage forbearance program, you should call your servicer to ask how much you might owe when payments resume. If you had automatic payments before forbearance, turn those back on again to ensure you don’t fall behind on payments. There could be a customer service bottleneck when payments begin again, so get ahead of that traffic now. If you are unsure of who your servicer is, visit

Consider Repayment Plan Options

Your servicer can help you sign up for an income driven repayment (IDR) plan. These plans lower your monthly bills to a set portion of your disposable income. You should complete the paperwork now so that you have an IDR plan in place when forbearance ends.

Understand Available Mortgage Options

Don't let student loan debt stifle your ability to purchase a home. Even with outstanding debt, there are an array of mortgage programs you may qualify for that can help get you into a home and begin building equity.

  1. Lower income borrowers may find the Fannie Mae HomeReady or Freddie Mac Home Possible loan options right for them. Both loans offer a low down payment of 3% and while the HomeReady loan may qualify you for cancellable mortgage insurance, saving you plenty later down the line, the Home Possible loan is also available to retirees.

  2. Freddie Mac also offers an addition low-down payment loan type called HomeOne. This loan does not have an income limit and is best suited for first time homebuyers looking to purchase a single family home which does include condos and townhouse units.

  3. The common FHA loan requires a down payment of 3.5% and is insured by the government, allowing you to reap the benefits of lower closing costs and easing of underwriting requirements.

  4. The VA home loan program is available to active-duty service members, veterans, and eligible surviving spouses. If you qualify for this loan type, you can enjoy the benefits of having to supply no down payment, no monthly mortgage insurance payments, and limited closing costs. In addition, you will have access to very competitive interest rates and enjoy this as a lifetime benefit to be used multiple times if you need.

  5. Similar to the VA loan, the USDA home loan program offers loans with no down payment requirements. The VA loan opens up access to lower interest rates as it is government backed, thus taking on some of the lending risk. Mortgage insurance is not required but you must be located in specific designated areas to qualify.

Lastly, it’s important to know that your outstanding student debt can potentially affect how a lender assesses the risk of offering you a mortgage. Mortgage guidelines will vary but you can count on them assessing your debt to income ratio which most likely will include your outstanding student debt. Review the repayment options above to put yourself in the best position possible when applying for a mortgage.


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