Edited and reviewed by CEO Vatche Saatdjian — 30+ years of experience — Expert on FHA loans
FHA Loans for Graduates
Don't let student loans hold you back from homeownership. Learn how Nevada lenders evaluate student debt for FHA loans and proven strategies to qualify even with education loans.
Having student loan debt does not automatically disqualify you from FHA financing. In fact, FHA loans are designed to help first-time buyers—many of whom are graduates carrying education debt—achieve homeownership in Nevada.
Student loans are allowed with FHA financing. However, your monthly student loan payment will be included in your debt-to-income ratio (DTI), which is how lenders determine if you can afford the mortgage.
FHA allows a maximum DTI of 43%-50% (sometimes higher with compensating factors). This means your total monthly debts—including mortgage payment, student loans, car loans, credit cards, etc.—can't exceed roughly 43-50% of your gross monthly income.
The good news: FHA guidelines offer flexibility in how student loan payments are calculated, and there are strategies to lower your DTI and improve qualification. Many Nevada graduates with student loans successfully secure FHA mortgages every year.
This is crucial: the monthly payment used in your DTI calculation might be different from what you're actually paying. FHA has specific rules (updated in recent years) on how to count student loans:
Scenario: Your credit report lists a monthly student loan payment amount (for example, $250/month).
FHA Rule: The lender will use that payment amount in the DTI calculation. This is usually the case if you're in active repayment.
Example: If your credit report says $250/month for student loans, the lender uses $250 in calculating your DTI—even if you're on an income-driven plan that might be lower or higher later.
Scenario: Your student loans are in deferment, forbearance, or show $0 payment on your credit report (e.g., still in school or grace period, or on an income-driven plan that calculated to $0).
FHA Rule (as of 2021 update): If the payment is $0, the lender uses 0.5% of the outstanding loan balance as a monthly payment for DTI purposes. Alternatively, if you provide documentation of an actual payment amount from your loan servicer, they can use that.
Example: You have $50,000 in student loans deferred. The lender will calculate 0.5% × $50,000 = $250/month for DTI (or use documented payment if you provide it). This can be higher than your actual payment once in repayment, which can hurt qualification—so providing proof of a lower income-driven payment plan amount is beneficial if available.
Scenario: You're on an IBR, PAYE, REPAYE, or ICR plan with a low (or $0) monthly payment based on your income.
FHA Rule: If your credit report shows that $0 or low payment, you must provide documentation from your loan servicer showing the actual monthly payment amount. The lender can then use that documented amount instead of 0.5% of the balance.
Why this matters: If your income-driven payment is, say, $100/month on a $50,000 balance, getting documentation of that $100 is much better than having the lender use $250 (0.5% of balance). Always provide this paperwork if applicable!
Scenario: Your student loans are co-signed by a parent or you co-signed someone else's loan.
FHA Rule: Generally, if a debt appears on your credit report, it counts in your DTI—even if someone else is paying it. However, if you can document that another party (like a parent) has been making the payments for 12+ months and will continue (via bank statements, etc.), some lenders might exclude it. This is case-by-case; discuss with your loan officer.
Tip: If possible, have co-signers refinance the loan solely in their name to remove it from your credit (and thus your DTI). This can significantly improve your mortgage qualification.
We'll calculate your DTI and show you what you qualify for • No obligation
If your student loans are making it tough to meet DTI requirements, here are proven tactics Nevada borrowers use to improve their chances
Why: Income-driven plans (IBR, PAYE, REPAYE, ICR) often result in lower monthly payments than standard 10-year repayment, especially early in your career when income is lower. A lower documented payment = lower DTI = easier to qualify.
How: Contact your federal student loan servicer to enroll in an income-driven plan before applying for your mortgage. Once enrolled and your servicer confirms the new payment amount, get written documentation (a letter or statement showing the monthly payment). Provide this to your FHA lender—they'll use that amount for DTI instead of a higher standard payment or the 0.5% calculation.
Example: Maria has $60,000 in student loans. Standard repayment would be ~$660/month. She switches to an IBR plan based on her $45,000 income; her new payment is $150/month. By documenting this, her lender uses $150 instead of $660 (or $300 via the 0.5% rule)—dropping her DTI significantly and allowing her to qualify for a Nevada FHA loan.
Why: DTI looks at all your monthly debts. If student loans are fixed, reducing other debts (credit cards, car loans) can bring your total DTI below the threshold.
How: Before applying for the mortgage, pay off or pay down credit card balances, personal loans, or car loans if possible. Even paying a credit card to $0 removes that monthly minimum payment from DTI calculations. Consider using savings or a bonus to eliminate smaller debts.
Tip: Don't close credit cards after paying them off (that can hurt your credit utilization and score). Just pay the balance to zero and keep them open with no balance. Your loan officer can advise which debts have the biggest impact to prioritize paying down.
Why: DTI = (Total monthly debts) ÷ (Gross monthly income). Raising the denominator (income) lowers the ratio, even if debts stay the same.
How – Co-Borrower: If you have a spouse, partner, or family member willing to co-apply, their income is added to yours, which can dramatically improve DTI. Note: their debts are also included, so ensure their financial profile helps more than hurts. Many Nevada couples use joint FHA applications to overcome student loan DTI issues.
How – Side Income: If you have consistent side income (freelance work, part-time job, rental income), you can include it in qualification if documented. Typically, lenders require 2 years of tax returns showing that income. If you recently started side gigs, it might not count yet, but plan ahead: establish it now and apply for your mortgage in a year or two when that income is verifiable.
Career moves: A promotion or job change increasing your salary can help. If you get a significant raise, update your lender with a new pay stub—it could change your qualification. Just be aware that switching jobs during the mortgage process can complicate things (lenders want stable employment). Ideally, secure the new job and be there a month or two, then apply.
Why: A smaller mortgage = smaller monthly payment = lower DTI. Sometimes the simplest solution is adjusting expectations on home price.
How: Run the numbers with your lender to see what home price keeps your DTI at or below 43-45%. You might find that dropping your target from $350k to $300k makes the difference between approval and denial. It's not ideal, but owning a starter home now and upgrading later (once you've paid off more student debt or increased income) is better than renting indefinitely.
Nevada reality: Markets like Las Vegas and Reno have a range of home prices. Consider looking in more affordable neighborhoods or smaller homes/condos to get your foot in the door. Build equity for a few years, then sell and move up when your financial situation improves.
Why: While FHA allows 3.5% down, putting more down (say 5-10%) slightly reduces your loan amount and monthly mortgage payment, which can edge your DTI into approval range. It also shows financial strength to the underwriter.
How: If you have gift funds from family, graduation money, or savings, consider using more of it for the down payment instead of holding it back. Even an extra $5,000-$10,000 down can reduce your mortgage payment by $30-$60/month, which might be enough to pass DTI if you're borderline.
Note: Don't deplete all your savings—you still need closing costs and reserves. But if you're sitting on extra cash, putting more down could be strategic. Your lender can model this: "If I put $15k down vs. $10k, how does it affect my qualification?"
Why: FHA allows manual underwriting for borrowers who don't fit automated approval (like those with high DTI but strong compensating factors). An experienced lender knows how to structure your application and present compensating factors to get approval even if DTI is slightly over 43%.
Compensating factors include: Excellent credit score (720+), significant cash reserves (several months of mortgage payments in savings), minimal increase in housing payment vs. current rent, strong employment history, etc. If you have these, an underwriter may approve you at 45-50% DTI instead of the standard 43%.
Nevada advantage: Work with a local Nevada FHA specialist who understands these nuances and can advocate for you. They'll package your file to highlight strengths. Some big online lenders might auto-deny a 45% DTI without human review; a dedicated loan officer will fight for your approval.
"I graduated from UNLV with $55,000 in student loans and was told by one lender I couldn't qualify for a mortgage. Then I found an FHA specialist who walked me through switching to an income-driven plan. My payment dropped from $600 to $200/month. Combined with paying off one credit card, my DTI went from 48% to 41%. I got approved for an FHA loan and bought my first condo in Henderson. Don't give up if one lender says no—find someone who knows FHA inside and out!"
— James T., Henderson, NV
We help Nevada graduates with student loans every day • Let's find your path to homeownership
See how different student loan situations affect your Nevada FHA mortgage approval
Answer: Yes, deferred loans still count. The lender will use 0.5% of the outstanding balance as a monthly payment (or the actual documented payment if you provide it from your loan servicer). For example, $40,000 deferred = $200/month counted toward DTI. If you can show you're on a $0 IBR payment plan (with servicer documentation), that's better—but if truly deferred with no payment info, expect the 0.5% rule. Plan for this in your budget calculations.
Answer: Both federal and private student loans count in your DTI. Private loans typically have fixed monthly payments reported on your credit report, which the lender will use. Federal loans follow the FHA rules discussed (0.5% if deferred, or actual payment if in repayment/documented). Add up all student loan payments (federal + private) for your total student debt obligation. The good news: FHA doesn't discriminate—federal, private, or a mix, all are handled the same way for qualification purposes.
Answer: Maybe, but be cautious. Refinancing student loans (especially federal into private) can lower your monthly payment if you get a better interest rate or extend the term. A lower payment = lower DTI, which helps. However: timing matters. If you refinance right before or during your mortgage application, it could raise red flags (new credit inquiry, new debt account) and complicate underwriting. Also, refinancing federal loans into private loans means you lose federal protections (income-driven plans, forbearance options, potential forgiveness).
Best approach: Talk to your FHA loan officer first. They can tell you if refinancing is necessary and the best timing. Often, switching to an income-driven plan (which doesn't affect federal benefits) is a better move than refinancing. If you do refinance, do it well before applying for the mortgage (ideally 6+ months prior) so your credit and payment history stabilizes.
Answer: It depends on how close. If you're within a few months of paying them off entirely, it might be worth waiting—once paid off, that debt disappears from DTI, potentially significantly improving your buying power. But consider the opportunity cost: Nevada home prices or interest rates could change while you wait. Also, you might qualify now even with the loans.
Strategy: Get pre-approved now to see if you qualify with the loans. If you do, you can start shopping for homes. If you're borderline and will have them paid off in 2-3 months, maybe delay. Alternatively, if you have savings, consider paying off the student loans in full right before or during the mortgage process (lenders can remove paid-off debts from DTI if you show proof). Your loan officer can model both scenarios for you.
Answer: Yes, if the loans are now in good standing. FHA does allow borrowers with past student loan defaults as long as the loans have been rehabilitated and you've made timely payments for at least 12 months since rehabilitation. The default will still show on your credit history (which might lower your score), but it's not an automatic disqualification if resolved.
Note: If your student loans are currently in default (not rehabilitated), that's a bigger issue. Federal policy often prohibits new federal loans (including FHA, which is federally insured) if you're in default on federal student loans. You would need to rehabilitate or consolidate them first and establish a payment history. Work with a credit counselor and your loan servicer to resolve defaults, then apply for the mortgage. It's fixable, but must be addressed before FHA approval.
Continue making all student loan payments on time throughout the mortgage application and closing. Missing a student loan payment during underwriting can tank your approval (delinquencies are a red flag). Even if cash is tight saving for down payment/closing costs, don't skip student loan payments—lenders verify payment history up until closing.
Also, avoid making large lump-sum payments or changes to your student loans during the mortgage process without consulting your loan officer. Paying off a chunk is great for DTI, but if it depletes your savings below required reserves, it could cause issues. Coordinate any big financial moves with your lender to ensure they help, not hurt, your approval.
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Quick answers to the most common questions Nevada homebuyers ask about student loans and FHA qualification