A student loan in deferment shows a $0 monthly payment on the credit report. Many borrowers assume this means it does not affect their DTI calculation. It does. Every agency has a rule for how to handle deferred student loans, and the amount they require the lender to use varies significantly.
Fannie Mae
Fannie Mae requires the lender to use the greater of the payment shown on the credit report or 1% of the outstanding loan balance. If the balance is $60,000 and the deferment shows $0, the lender must use $600/month in DTI. This is the same 1% rule that applies to IBR payments at zero.
Freddie Mac
Freddie Mac uses 0.5% of the outstanding balance when the credit report shows $0 or when no payment is shown. On a $60,000 balance, that is $300/month. Freddie is more favorable than Fannie for borrowers with large deferred balances, which is one reason to run LP alongside DU on borderline DTI files with student loans.
FHA
FHA uses 0.5% of the outstanding balance for deferred student loans. This aligned FHA with Freddie Mac after the 2021 guideline update. Before that change, FHA used 1%, which penalized borrowers significantly. At $60,000 deferred balance, FHA now uses $300/month.
VA and USDA
- ✦VA: uses 5% of the balance divided by 12 for deferred loans; on $60,000 that is $250/month; VA has historically been more lenient on student loan treatment
- ✦USDA: uses 0.5% of the outstanding balance when no payment is shown or payment is zero
- ✦Tip: always pull the actual loan balance from the servicer rather than relying on the credit report balance, which may be outdated
Aria can calculate deferred student loan DTI impact across all five agency programs simultaneously and identify which program produces the lowest qualifying ratio for your borrower. Ask at vicariointel.com.
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