Student Loan Guidelines for Qualifying for a Mortgage in Kentucky

Student Loan Guidelines for Qualifying for a Mortgage Loan in Kentucky (2025 Update)

If you have student loan debt and you’re planning to buy a home in Kentucky, you’re not alone. Many first-time homebuyers face this same challenge — understanding how their student loans impact mortgage qualification. The good news? Each loan program (FHA, VA, USDA, Fannie Mae, and Freddie Mac) has its own approach to handling student loan payments.

Here’s a breakdown of how lenders calculate student loan payments for each major loan type when determining your debt-to-income (DTI) ratio.

FHA Loans (Federal Housing Administration)

Student Loan Payment Requirement:

FHA requires all student loans to be included in the borrower’s liabilities, no matter the payment type or loan status (including deferment or forbearance).

Lenders must use the greater of:

• 0.5% of the outstanding balance, or

• The payment shown on the credit report

✅ However, if your loan servicer provides documentation showing a fully amortizing payment, that amount can be used instead.

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VA Loans (Veterans Affairs)

Deferred Loans:
If written evidence shows the student loan debt will be deferred for more than 12 months after closing, no payment is required in the DTI.

Loans in Repayment:
If repayment starts within 12 months:

• Use 5% of the balance ÷ 12 months as the calculated payment, or

• Use the higher credit report payment if applicable

• If documentation from the loan servicer shows a lower verified payment, that can be used even if it’s below 5%

 USDA Loans (Rural Housing)

Fixed Payments:
If your loan has a permanent, amortized, fixed payment, that’s what’s used in qualifying.

Non-Fixed or Deferred Payments:
For non-fixed loans (like IBR, graduated, or deferred payments), USDA requires lenders to use 0.5% of the current balance listed on your credit report.

Fannie Mae (Conventional Loans)

Loans in Repayment:

• Use the credit report payment if accurate

• If the credit report payment is incorrect, documentation from the servicer can verify the true monthly payment

Income-Driven Repayment (IDR) Plans:

• Use the actual documented monthly payment — even if it’s $0, provided documentation supports it.

Loans in Deferment or Forbearance:

• Use 1% of the outstanding balance, or

• A fully amortizing payment based on verified terms

 Freddie Mac (Conventional Loans)

Loans in Repayment:
Use the greater of:

• Payment on credit report, or

• 0.5% of the higher of the original or outstanding balance

Loans in Deferment or Forbearance:
Use the greater of:

• Payment on credit report, or

• 0.5% of the higher of the original or current balance

Loan Forgiveness, Cancellation, or Employment-Contingent Repayment:
Payments may be excluded entirely if:

• Documentation shows the loan will be forgiven, canceled, discharged, or paid off through an employment-contingent repayment program

• The borrower currently meets all qualifications for that program

Key Takeaway for Kentucky Homebuyers

Student loan debt doesn’t automatically disqualify you from buying a home in Kentucky. The key is how your payments are calculated for your debt-to-income ratio, and that depends entirely on your loan program.

✅ If your loans are in an income-driven repayment plan, Fannie Mae or VA loans might be more flexible.
✅ If your loans are deferred or non-fixed, USDA and FHA tend to use set percentage rules (0.5% or 1%) to estimate payment.

An experienced loan officer can help determine which program best fits your situation and help structure your file correctly so your student loan debt doesn’t block your path to homeownership.

 Need Expert Guidance? Let’s Talk.

I’ve helped hundreds of Kentucky homebuyers navigate student loan challenges and secure FHA, VA, USDA, and Conventional financing. I’ll help you understand your options and guide you to the best program for your needs.

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Joel Lobb – Mortgage Loan Officer

📍10602 Timberwood Circle, Louisville, KY 40223
📞 Call/Text: 502-905-3708
📧 kentuckyloan@gmail.com
🌐 www.mylouisvillekentuckymortgage.com

NMLS #57916 | 
Serving all of Kentucky: FHA, VA, USDA, and KHC First-Time Homebuyer Programs

Student Loan Guidelines For Qualifying for a Mortgage Loan in Kentucky

Student Loan Guidelines for Qualifying for a Mortgage in Kentucky (Update)

Learn how student loan payments impact your Kentucky mortgage approval. FHA, VA, USDA, Fannie Mae, and Freddie Mac all treat student loans differently — here’s what you need to know before applying.

Loan type	Student Loan Payment Requirement
FHA	Must be included in the borrower’s liabilities regardless of the payment type or status. The payment amount must be either: ▪ The greater of: ·        ..5% of the outstanding balance on the loan or ·        Monthly payment reported on the borrower’s credit report, or ▪ The servicer’s documented payment provided the payment will fully amortize the loan over the repayment term period
VA	Deferred A payment does not need to be included if written evidence supports that the student loan debt will be deferred beyond 12 months of closing. In Repayment Include loans with payments starting within 12 months. Calculate threshold payment as a rate of 5% of outstanding balance divided by 12 months. If credit report payment is higher, use credit report payment. If current documentation from student loan servicer reflects actual terms and payment for each loan, the verified payments may be used even if less than the threshold payment calculation.
USDA	Fixed Payment A permanent amortized, fixed payment is used when documentation supports fixed payment, interest and term. Non-Fixed payment Use .5% of the loan balance reflected on the credit report. Payment arrangements that are deferred or non-fixed (Income Based Repayment (IBR), graduated, adjustable, interest only, etc.) may not be used.
Fannie	Loans in Repayment Period ▪ If provided, use the credit report payment ▪ If credit report is incorrect, obtain student loan documentation from the servicer to verify the payment used for qualification Income Driven Repayment Plan Use the student loan documentation to verify the actual monthly payment. Borrower may be qualified with a $0 payment if the documentation supports it. Loans in Deferment or Forbearance ▪ A payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment) or ▪ A fully amortizing payment using the documented loan repayment terms
Freddie	Loans in Repayment Period Use the greater of payment reported on credit report or .5% of the higher of original or outstanding loan balance as shown on credit report. Loans in Deferment or Forbearance Use greater of payment reported on credit report or .5% of the higher of original or current outstanding loan balance as shown on the credit report. Loan Forgiveness Cancelation Discharge Employment Contingent Repayment Programs Payment may be excluded if file contains documentation that indicates: ▪ Monthly payment is deferred and/or in forbearance and full balance of the loan will be forgiven, canceled, discharged or will be paid if qualified for an employment-contingent repayment program and ▪ Borrower currently meets requirements for the student loan forgiveness/cancelation program Obtain documentation from the student loan servicer to show the loan will be forgiven, canceled, discharged or that the borrower qualifies and is approved under an employment contingent repayment program that will extinguish the debt.

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Joel Lobb 

 Email - kentuckyloan@gmail.com 

 Call/Text - 502-905-3708

 www.mylouisvillekentuckymortgage.com
 911 Barret Ave., Louisville, KY 40204

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Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916

Kentucky Mortgage Loan Expert For Kentucky FHA, VA, USDA, Fannie Mae and KHC Down payment Assistance Loans

🏡 Kentucky Mortgage Qualification

How Student Loan Payments Affect Your DTI & Loan Options

FHA Loans

Most Popular for First-Time Buyers

📊 Payment Calculation

Use GREATER of:

• 0.5% of balance
• Credit report payment
• Documented payment

⏸️ Deferred Status

Payment ALWAYS included in DTI calculation

💡 Key Note

Even $0 payments count—uses 0.5% calculation

VA Loans

For Veterans & Service Members

📊 In Repayment

Use GREATER of credit report payment or 5% of balance ÷ 12

✅ Deferred Advantage

NO payment included if deferred 12+ months past closing

💡 Key Note

Documentation is key—get written proof of deferment

USDA Loans

Rural Kentucky Homebuyers

📊 Fixed Payments

Use documented payment that amortizes loan

📊 Variable/Deferred

Use 0.5% of loan balance or full amortizing payment

💡 Key Note

Standard 10-year repayment gets most favorable calculation

Fannie Mae

Conventional Program

📊 In Repayment

Use credit report payment (verified if needed)

✅ IDR Plans

Can use $0 payment if documented on IDR plan

💡 Key Note

Most flexible with income-driven repayment options

Freddie Mac

Conventional Program

📊 In Repayment

Use GREATER of credit report payment or 0.5% of balance

⚠️ More Restrictive

0.5% calculation often results in higher imputed payment

💡 Key Note

May have higher DTI impact than Fannie Mae

🎯 Quick Comparison: Same $50,000 Student Loan

FHA (Deferred)

$250/month
0.5% × $50,000 = Always counted

VA (Deferred)

$0/month
Excluded if 12+ months deferred

USDA (Deferred)

$250/month
0.5% × $50,000 = Counted

Fannie Mae (IDR)

$0/month
IDR plan can show $0

Kentucky First-Time Homebuyer Resources

Understanding how student loans affect qualification helps you choose the best loan program for your situation.

📞 502-905-3708 | 📧 kentuckyloan@gmail.com
Your Kentucky Mortgage Expert

Student-Loan Freeze Led to Big Credit-Score Gains

 

Student-Loan Freeze Led to Big Credit-Score Gains, N.Y. Fed Says

• Some 30 million student borrowers saw scores rise, study says
• Freeze is set to expire on Aug. 31 but Biden may extend it

Share of Borrowers by Credit Score

Credit scores for student loan borrowers increased dramatically

Here are some key takeaways from the New York Fed report.

Better Credit Scores

The share of student-loan balances held by subprime borrowers fell to 26% in 2021, from 36% in 2019. That’s primarily because loans owed to the federal government that were delinquent before the pandemic were marked as current under the forbearance policy, putting millions of households on a sounder financial footing. 

“The end of forbearance will have impacts on credit scores, borrowing, and household cash flow over the coming year for the 38 million federal borrowers that have benefited from the pause,” the New York Fed researchers wrote. “Some borrowers will enter delinquency or default.”

Growing Balances

With repayments on hold, about two-thirds of student-debt holders had balances that were growing or flat at the end of 2021, compared with just 48% in 2019. That’s an increase of roughly 3.2 million borrowers.  

There was also a shift in the typical size of debts, with larger loans accounting for a bigger share of the total. At the same time, 5.4 million people who were recorded as having student debt outstanding at the end of 2019 no longer owed anything by the end of 2021.

Loan Shifts

Since the pandemic, larger debts have increased as a share of total loans

Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

DC Debt Leader

On average, student borrowers in and around the nation’s capital owed the most at the end of 2021. Washington DC topped the list, with an average debt of $53,769, while Maryland ranked second and Virginia fifth. 

Student Loans by State

Average balances vary widely across states

Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

Note: As of Q4 2021, average balance

“Of the ten states (not including D.C.) with the largest median balance, seven belong to the Southern Census region (Georgia, Maryland, Virginia, North Carolina, South Carolina, Alabama, and Tennessee),” the report found.

Top 10 Student Loan Debt

Seven of top-10 largest belong to the Southern Census region

Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

Note: Ranked by median loan amount

Once the forebearence period ends, loan amounts are anticipated to rise and delinquency rates across states in the South are expected to have worse outcomes.

 

 

https://www.bloomberg.com/news/articles/2022-08-09/student-loan-freeze-raised-credit-scores-dramatically-ny-fed

How to qualify for a Kentucky FHA, VA, USDA and Fannie Mae Mortgage loan with Student Loans

Guidelines for KY FHA, VA, USDA and VA Mortgage loans with Student Loans on A Credit Report:

Kentucky Fannie Mae or Conventional Guidelines for Student Loans: If a monthly payment is on the credit report, the lender may use that amount for qualifying purposes.  If a monthly payment is on the credit report is incorrect, the lender may use the monthly payment on the most recent student loan statement If the monthly payment on the credit report is zero, the lender must use one of the following options to calculate the payment for qualifying purposes Document the borrower is on an income driven payment plan and the actual monthly payment is zero  Use 1% of the outstanding student loan balance as the monthly payment Calculate a fully amortized payment using documented loan repayment terms Kentucky FHA Mortgage Loans Guidelines: Regardless of the payment status (currently in payment or deferred), the lender must use either: The greater of: .5 % of the outstanding balance; or The monthly payment reported on the credit; or  Calculate a fully amortized payment using documented loan repayment terms Kentucky USDA or Rural Housing Guidelines: Regardless of the payment amount reporting on the credit, the lender must include the payment as follows: A permanent amortized, fixed payment may be used in the debt ratio when the lender retains documentation to verify the payment is fixed, the interest rate is fixed, and the repayment term is fixed. Payments for deferred loans, Income Based Repayment (IBR), Graduated, Adjustable, and other types of repayment agreements which are not fixed cannot be used in the total debt ratio calculation. .5% of the loan balance reflected on the credit report must be used as the monthly payment. No additional documentation is required. Kentucky  VA Mortgage Guidelines for Student Loan: If the borrower can document the student loan will be deferred 12 months from the closing date, the monthly payment does not need to be considered If a student loan is in repayment or scheduled to begin repayment within 12 months from the closing date, the threshold payment amount must be calculated by  using 5% of the loan balance divided by 12 months If the payment reporting on the credit report is greater than the threshold payment calculation amount, then the credit report payment must be used for ratios. If the payment reporting on the credit report is less than the threshold payment calculation and the lender is using the lower payment to qualify the borrower then: A statement from the student loan servicer reflecting the actual loan terms and payment information must be included in the file.  The statement must be dated within 60 days of closing It is the underwriter’s discretion to use the lower payment

As you can see, Fannie Mae or Conventional loans is the most lenient when it comes to qualifying for a mortgage loan with someone that has a lot of student loans on their credit report.

 

Joel Lobb (NMLS#57916)
Senior  Loan Officer

 

American Mortgage Solutions, Inc.

10602 Timberwood Circle Suite 3

Louisville, KY 40223

Company ID #1364 | MB73346

 

Text/call 502-905-3708
kentuckyloan@gmail.com

 

 

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Louisville Kentucky Mortgage Broker Offering FHA, VA, USDA, Conventional, and KHC Zero Down Payment Home Loans | October 17, 2018 at 3:54 pm | Tags: fha gift funds, fha loan kentucky, FHA Loans Kentucky Housing First time home buyer, fha mortgage, fha mortgage loan, gift funds for fha mortgage, kentucky fha loans

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