FHA student loan guidelines

If you’re one of the 44 million Americans who have student loan debt, it can be easy to feel like homeownership is out of reach. While student loan debt can be a heavy burden, there are still ways to get a mortgage and buy a home.

The Federal Housing Administration (FHA) has a loan program that helps people with lower credit scores or less savings buy a home, and it has special guidelines for people with student loan debt that can help them buy a home.

We’ll break down the FHA’s rules for student loan debt and how you can use an FHA loan to buy a home.

Quick overview

• FHA loans are mortgages that are designed for people with lower credit or small down payments
• If you have student loans, you can still qualify for an FHA loan
• If your loan is in deferment or forbearance, lenders will use 0.5% as its assumed monthly payment when determining your debt-to-income ratio

What are the FHA guidelines for student loans?

When you apply for a loan, lenders will want to examine both your credit history and your current financial situation to determine if you can pay the loan. One of the things they look at is your existing debts and how much you must pay toward them each month.

With student debt, the FHA has special rules for determining how much you pay toward the loan each month when considering your eligibility for a loan.

The guidelines state that lenders must use either:

• The actual payment amount shown on the credit report or bill
• 0.5% of the outstanding loan balance

This means that loans that are deferred or in forbearance are included in determining your ability to qualify for a loan.

What changed from the ‘1% rule’?

In the past, the FHA used what was called the 1% rule to determine eligibility for mortgages. Under this rule, lenders considered your payment to be equal to 1% of your loan amount when determining debt-to-income (DTI) ratio.

Now, lenders can use either the actual payment or 0.5% of the loan amount, making it easier to qualify for a loan.

How FHA counts student loan payments

How FHA lenders count your student loan payments will depend on the status of your loan.

If you’re making payments (standard vs. income-driven repayment/income-based repayment)

If you’re making payments on your student loan, lenders will use the actual amount you pay each month when calculating your debt-to-income ratio. They’ll find this information on your credit report or the copy of a bill you provide them.

If you’re not making payments (deferment, forbearance)

If you aren’t making payments because your loans are in forbearance or deferment, lenders will use 0.5% of your total loan amount when calculating DTI.

For example, if you have a loan for $40,000, the lender will find 0.5% of that amount ($200) and assume that number is your monthly payment when calculating your DTI.

Documentation lenders need to verify payment amounts

Your lender may be able to find your payment amount on your credit report. You can also provide your lender with a copy of your loan statement or a bill to prove the amount of your monthly payment.

DTI example with student loan debt

Your DTI ratio plays a big role in how much money you can borrow using a mortgage. Your student loan debt impacts your DTI ratio, so understanding how it affects DTI is important for figuring out how much you can borrow.

Step-by-step calculation

Imagine that you earn $60,000 per year or $5,000 a month. Each month, you get the following bills:

• Auto loan: $400
• Credit card bill: $250
• Medical debt: $100
• Student loan bill: $350

Your total monthly debt payments are $1,100. That means your debt-to-income ratio is $1,100 / $5,000 = 22%

How payment assumptions affect the max loan amount

With an FHA loan, there is a limit to how much you can borrow based on the DTI ratio your mortgage would leave you with. Typically, you can’t exceed a DTI of 36%, but you can go up to 45% with strong credit and, in some rare cases, go as high as 50%.

Assume the person in the above scenario has strong credit and can get a loan with a DTI ratio of 45%. That would mean they could handle a monthly mortgage payment of $1,150.

$1,100 + $1,150 = $2,250

$2,250 / $5,000 = 45%

Now imagine that the person in the above scenario has $95,000 of student loan debt, but that the loan was in deferment. Using FHA guidelines, the lender would assume the payment on that debt would be $475.

That would reduce the potential mortgage payment to $1,025.

Repayment status and mortgage eligibility

The current repayment status of your student loans will also affect your ability to qualify for a mortgage.

Forbearance and deferment considerations

If your loan is in forbearance or deferment, you can still qualify for a mortgage. Lenders will use 0.5% of the loan amount when determining your DTI ratio, so if you have a large student loan and plan to use income-driven repayment methods to keep your payments low, that may make it difficult to qualify.

For example, if you have $200,000 of debt, lenders would assume a monthly payment of $1,000, even if an income-based repayment plan would make your payment a far more affordable $300 a month.

Default or past due loans: What to expect

If you have a student loan in default or that is past due, you’ll have trouble qualifying for any type of loan, let alone a mortgage. Having a loan go into default will damage your credit, and FHA lenders won’t accept applicants with a government loan in default.

Strategies to qualify with high student debt

If you have student debt, consider these strategies for qualifying for an FHA loan.

Switch out of forbearance or update repayment plan

If your loan is in forbearance, lenders will look at 0.5% of its balance when calculating your monthly payment. If you have a large balance, consider moving the loan out of forbearance and using an income-driven repayment plan. That can leave you with a low payment that will reduce your DTI ratio as compared to the calculated payment from 0.5% of your loan balance.

Run the numbers and reduce DTI

Before you apply for a loan, do the math yourself to see what your DTI ratio is. If possible, try to reduce your DTI ratio by paying off other loans. For example, if you can pay off some credit card debt or an auto loan, you can free up money in your monthly budget.

Work closely with your loan officer

Your loan officer is there to answer any questions you have about applying for a loan. They can also give you advice on how to improve your financial situation to help you qualify for a loan.

FHA vs. conventional: student loan treatment

Like with FHA loans, conventional loans involve an underwriting process that examines your financial situation. However, how your student loans are treated when applying for a conventional loan may differ.

Key differences borrowers should know

The key difference in how student loans are treated by FHA and conventional loans is in how your payment is determined when calculating DTI.

With a conventional loan, lenders may calculate the payment to be $0 if you can show that the loan is truly $0 based on an income-driven repayment plan. For loans in deferment or forbearance, the lender can use either 1% of the balance (more than the 0.5% used by FHA loans) or what the fully amortizing payment of the loan would be.

2025 context and policy notes

Government policies are always changing, and the same is true when it comes to FHA loans and student loans, so it’s important to stay aware of things that could affect your ability to qualify for a loan.

SAVE plan litigation and potential impacts

In 2023, the Saving on Valuable Education (SAVE) Plan was enacted. This provided an income-driven repayment plan that allowed some borrowers to reduce their monthly student loan payments.

In 2024, two states filed a lawsuit against the plan, which led to a court ruling that the Education Department must stop implementing the plan.

Depending on how the litigation plays out, people using the SAVE Plan may need to begin making full payments or move to another income-driven repayment plan. This could increase the amount of your monthly payment, reducing the amount you can borrow through a mortgage.

Required documentation checklist

When you apply for a mortgage, you’ll need to provide your lender with a variety of documentation to show your financial situation. This can include things like bank statements, loan statements, and other financial documents.

If you have student loans, you’ll need other documents to show the status of your student loans.

Loan statements, repayment plan, status letters

When you apply for an FHA loan and have student debt, you’ll need to provide some additional documentation. On top of providing your loan statements, you’ll have to provide any status letters showing whether your loan is in forbearance, deferment, or active repayment.

If you have a special repayment plan, such as an income-driven repayment plan, you’ll have to provide proof that you’ve set up that plan and how much you pay each month.

If you have a balance forgiven, canceled, discharged, or paid in full, you’ll also need letters from your lender to that effect.

FAQ about student loan repayment

Applying for FHA loans while carrying student loan debt can be tricky, so make sure you understand how your student debt affects your chances of getting a mortgage.

What are the FHA guidelines for student loans?

FHA guidelines for student loans affect how lenders calculate your monthly loan payment to determine your DTI ratio. Lenders use either the actual amount of your payment or 0.5% of your balance when determining your DTI.

How are student loan payments calculated for FHA loans?

To determine the amount of your monthly student loan payments for FHA loans, lenders use either the actual payment amount on your bill or 0.5% of the loan’s balance if your loan is in forbearance or deferment.

Can I get an FHA loan if my student loans are in default?

No, you cannot get an FHA loan if you have student loans in default.

What happened to the ‘1% rule’?

FHA lenders no longer use the 1% rule. Instead, they use either your actual monthly payment or 0.5% of the loan amount when calculating your DTI ratio.

The bottom line: You can get an FHA loan while you still have student loans

Having student loans can feel like a burden, but they don’t need to stop your from milestones in your life, such as buying a home. FHA loans use specific guidelines when accounting for your student loans when you apply for a mortgage. Understanding how your student loans will affect your debt-to-income ratio will help you prepare your application and give yourself the best chance of qualifying for a loan.

If you’re ready to start your home buying journey, Rocket Mortgage is here to help. You can reach out to a Home Loan Expert to start the preapproval process today.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.