Student loan debt has been increasing at an alarming rate in the U.S. and the military is no different. Although the military have great VA education benefits, they are not immune to student loan debt. The debt could be for the service member, a spouse, or child. Student loan payments can vary widely and a common question is “How does VA treat student loans?” Fortunately, VA student loans guidelines are very flexible when it comes to qualifying for a mortgage.
VA Student Loans Guidelines for Deferred Payments
Often, student loan debt has deferred payments. Therefore, no payments are due for a specified amount of time. This is common for new student loans, recent graduates, or for students still in school. VA breaks down deferred student loans into two categories:
- Deferred at least 12 months beyond the mortgage closing date
- Deferred less than 12 months beyond the mortgage closing date
Student Loans Deferred Greater Than 12 Months
Many mortgage loans require lenders to create a payment on deferred student loans. Typically, programs require a payment of 1/2% – 1% of the outstanding student loan balance. But for student loan payments deferred greater than 12 months after the mortgage closing date, VA student loans guidelines will not count a payment. This is a huge advantage for buyers in qualifying. For instance, $50,000 in student loan balances with deferred balances would be a $500 payment using 1% of the balance. VA would use $0!
Student Loans Less Than 12 Months
If a student loan has payments that comes out of deferment in less than 12 months from the mortgage closing date, it is treated a little differently. Other loans still use their calculation of 1/2 – 1% of the balances. But, VA student loans rules are different and better. Rather than using up to 1% of student loan balances, the follow is the VA student loan calculation used for calculating VA debt to income ratio.
Student loan balance times 5% divided by 12 months
Check out these payments used for sample balances
|Student Loan Balance||Payment Used in Debt Ratio|
VA Student Loans Guidelines When Payments Are Required
When loans are not in deferment, a payment is required. Student loan payments come in many forms including fully amortized (based on a fixed rate and term), income based repayment, and graduated payment. When the payment is fully amortized, that payment must be used. But when a payment is not fixed, VA requires the following:
Higher of the earlier calculation (balance x 5% / 12) or payment reporting on the credit report
Here are examples of which payment to use
|Student Loan Balance||5% Calculation||Credit Report Payment||Payment to Use|
The Right VA Loan For You
Do you have student loan debt and wondering if you qualify to buy a home? Reach out to an OVM Financial loan officer to find out. Not only will you find out about qualifying with student loans, but also other great VA loan strategies. Strategies including having 2 VA loans at once, seller paying costs and debts for the buyer, and much more.