USDA Loan Qualifying and the Deferred Student Loan

How Student Loans Impact USDA Loan Qualifying

When people are looking at getting an Arizona Home Loan whether it is a USDA Loan or FHA Loan who have existing student loans, they need to be aware of how those student loans will impact their qualifying.  The USDA Loan Program is very popular among recent graduates, and a couple reasons are because not only is there not a down payment requirement but it is the simplest home loan to get.

Because you don’t need to fork out a ton of cash to get into the USDA Loan Program it has gotten VERY popular over the last few years.

Student loans come in two classes: deferred and not deferred.  And one thing to keep in mind when looking at the USDA Loan Program is that it does treat student loans differently than the other loan programs available.  At first glance you would intuitively think that a deferred student loan would not be considered in qualifying for your new home loan.

And for most Arizona Home Loan programs that would be the correct way to look at the deferred student loan.

However the USDA Loan Program is a little different in that it requires all long term debt to be included in the qualifying calculations.  Until recently, the USDA considered any loan that has at least 6 remaining monthly payments as long term debt.  So in the case of a deferred student loan, even if it has only 6 monthly payments remaining, then it would be included in the qualifying process.

This September that rule changed slightly with the publication of Administrative Notice 4543.  Now, any student loan whether it is in repayment or deferred must be included in the qualifying calculations.

If you do have student loans that are in deferred status and plan on getting a USDA Loan, be sure you know exactly how much the monthly payment will be once the loan is back in repayment status.  If you do not have that information, the USDA Underwriters will use 1% of the loan balance as the monthly payment.

I hope you found this Arizona Home Loan tip useful and would love to hear your comments.

To find out if you qualify for a USDA Loan call (520) 225-0380 or click on the Get Started on USDA tab above and ask for a quote.  If you want to go ahead and get your application in, you can fill out my Home Loan Application Online here.