Student loans and mortgage qualification

How each program calculates the payment

The critical question is: what monthly payment does the lender count against your DTI? Each program has a different formula:

• Conventional (Fannie/Freddie): Actual payment on the credit report is used. If $0 (IDR), $0 is used — with documentation from the servicer.
• FHA: If actual payment on report is $0 or 'deferred,' use greater of the payment on the credit report or 0.5% of the outstanding balance.
• VA: If deferred >12 months, use 5% of balance ÷ 12 as the monthly payment. If not deferred, use the actual payment.
• USDA: Fixed payment used as reported. Deferred/IBR — greater of the credit-report payment or 0.5% of balance.

The math example that shows why this matters

Borrower with $80,000 in federal student loans on an income-driven repayment plan with a $110/mo actual payment:

• Conventional: $110/mo used → adds ~$20K back to max home price
• FHA: greater of $110 or 0.5% × $80K = $400/mo → cuts ~$72K off
• VA: deferred? 5% × $80K ÷ 12 = $333/mo
• USDA: same as FHA — $400/mo

A borrower with heavy student loans on IDR should almost always start with a conventional pre-approval, not FHA.

Documentation you need to bring

1. Most-recent servicer statement showing the actual monthly payment (or $0 for IDR). 2. Repayment plan letter if you're on IDR, IBR, PAYE, or REPAYE — the letter must be current and name the plan. 3. Payoff statement if you're planning to pay a loan down to under 10 remaining payments before closing (those can be excluded from DTI on FHA and conventional). 4. Consolidation documents if you've refinanced recently, so the underwriter sees the current active loan structure.