The student loan debt in the U.S. is now up to around $1.5 trillion. This puts it second to only mortgage debt. With student loans becoming more and more common, I wanted to talk about how student loans affect your ability to purchase a home.

First, you’ll need to understand debt to income ratios. We use two different debt to income ratios when determining your eligibility for a home loan, front end and back end.

• Front-End – Your front-end ratio is the new housing payment versus your total gross income. If your monthly income is $6000 and your new housing payment is $2000, your front end ratio would be $2000/$6000 or 33%.

• Back-End – Your back-end ratio includes your monthly debts and your new house payment versus your monthly income. So using the same example earlier, let’s add a $300 car payment and a $50 credit card payment. That changes the ratio to $2350/$6000 or 39%.

Student loans affect your back end ratio. Each loan program has their own requirements for maximum debt ratios so be sure to check out our Programs page.

Determining Your Student Loan Payment

Now that you’re aware of debt to income ratios, you’ll need to know how we determine your student loan payment. In most cases, the payment that is reporting to your credit report is what we will use to help figure your ratio. However, each program has different guidelines to determine your payment.

FHA – When calculating your student loan payment for an FHA loan, we use 1% of the balance or the payment reporting to your credit report, which ever is greater.

Freddie Mac – For loan programs using Freddie Mac Guidelines we use .5% of your balance or the payment reporting to your credit report, whichever is greater.

Fannie Mae – For loan programs using Fannie Mae Guidelines we use 1% of your balance or the payment reporting to your credit report whichever is greater. However, Fannie Mae Guidelines will take into account Income Based Repayment Plans.

VA – When calculating your student loan payment for a VA loan, we use 5% of the balance divided by 12 (months) or the payment reporting to your credit report, which ever is greater.

USDA – When calculating your student loan payment for a USDA loan, we use 1% of the balance or the payment reporting to your credit report, which ever is greater.

That should give you an idea of how student loans affect your ability to purchase a house. If you’re interested in knowing what you qualify for, take our quick survey.