Can I Buy My First Home in Orange County With Student Loans?

Can you buy your first home in Orange County with student loans? Yes. Many first-time buyers do, and the key is knowing how your lender will count those loans when it figures what you can borrow.

I'm Jeanette Nelson, a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas. Student loans come up in almost every first-time buyer conversation I have. Most of the time, the question isn't whether you can buy, it's how the payment will be counted.

Lenders look at your debt-to-income ratio, or DTI. The Consumer Financial Protection Bureau (CFPB) defines it as your monthly debt payments divided by your gross monthly income. Your student loan payment is one of those debts.

So the question becomes: what monthly payment will the lender use? That depends on which kind of loan you choose.

Conventional loans usually follow Fannie Mae or Freddie Mac rules. They differ in one important way.

Fannie Mae (Selling Guide B3-6-05):

• If your credit report shows a monthly payment, the lender may use it. If that number is wrong, the lender may use the payment on your latest student loan statement.
• If you're on an income-driven repayment plan and can document that your actual payment is $0, the lender may qualify you with a $0 payment.
• If your loans are deferred or in forbearance, the lender may use either 1 percent of the balance or a fully amortizing payment based on your documented loan terms.

Freddie Mac (Guide Section 5401.2):

• Freddie Mac requires a payment greater than zero for all student loans, including income-driven plans.
• If your credit report shows $0, the lender generally uses 0.5 percent of the outstanding balance, unless other documents support a different payment above zero.

On a large balance, these differences can change your DTI a lot. That's one reason to ask your lender which program fits your situation.

HUD's Mortgagee Letter 2021-13 set the FHA rule, which now lives in the FHA handbook. Lenders must include all student loans, regardless of payment status. For the monthly amount, they use:

• The payment on your credit report, or your actual documented payment, when it is above zero, or
• 0.5 percent of the outstanding balance when your credit report shows a $0 payment.

If the lender uses a payment lower than what your credit report shows, it needs written proof of your actual payment from your servicer. A loan that has been forgiven, canceled, discharged or paid in full can be left out with written documentation.

Sometimes. Fannie Mae allows a lender to leave out a debt that someone else pays, such as a parent paying your student loan. The lender needs the most recent 12 months of canceled checks or bank statements from the person paying, showing no late payments. This doesn't apply if the person paying is part of the sale, such as the seller or a real estate agent.

1. Pull your student loan statements. Know each balance, payment and status.
2. Check your credit report. Make sure the payments shown match your statements.
3. Ask your servicer for a payment letter if you're on an income-driven plan.
4. Talk with a lender early. Ask how each loan type would count your payment.
5. Look at assistance. CalHFA's MyHome Assistance Program can help eligible first-time buyers with down payment and closing costs. Income limits and a homebuyer education course apply. Check the official page for what is open today.

This is general information, not lending advice. Your lender will decide how your loans are counted, and a financial or tax professional can help you weigh paying down loans against saving for a down payment.

For next steps, see how much to save for your first home and what you'll pay at closing.

If student loans have you wondering whether buying is realistic, I'd love to help you find out. We can talk through your goals and connect you with a lender who will run your real numbers. Call or text me at 714.366.8575 | DRE: 01397168, or contact me. Jeanette Nelson is a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas.