How Will a Student Loan Affect an FHA Loan Application?

When you apply for an FHA mortgage, the lender looks at your entire credit profile to determine whether to issue the loan and, if so, what interest rate to charge. Included in your credit history is how much you owe and how you've handled your debt -- and this includes your student loans. If you have significant outstanding loans, lenders will view you as a more risky borrower because of your existing debts and will charge you a higher interest rate or not be willing to lend as much money. In fact, they might not be willing to give you the loan at all, even if you have a high income.

Just because your student loans are deferred doesn't mean lenders won't consider them when you apply for an FHA mortgage. Deferment means that you are legitimately delaying making payments -- you are not paying them currently. However, they still count as outstanding debt, and your lender must anticipate how much of your monthly income you'll have to put toward paying off the loans as soon as the payments begin.

The back-end ratio, also known as the debt-to-income ratio, measures your total debt payments -- including your anticipated monthly mortgage expenses, student loan payments, and any other debt -- as a percentage of your monthly income. FHA lenders typically do not accept a back-end ratio higher than 41 percent. For example, if your monthly gross income is $3,500, you're limited to $1,435 total monthly debt. If you have a $400 student loan payment every month and no other debt, your mortgage payment can be no more than $1,035.

In order to be eligible for an FHA loan, you can't be delinquent on any federal debts. If you took out federal student loans, such as Stafford loans or Perkins loans, you must have been making on-time payments for at least two years prior to applying for the FHA mortgage in order to qualify. If you have fallen behind on your payments, you won't be eligible for an FHA loan.