You finally saved enough for a down payment. Your credit score looks good. You have a steady income. You apply for a mortgage and feel confident.
Then the lender tells you no. The reason? Your student loans are in forbearance.
You're confused. You're not even making payments on those loans right now. How can they hurt your chances of buying a home?
This situation happens to thousands of people every year. Student loan forbearance seems like it helps you. But when it comes to getting a mortgage, it can destroy your application.
What Is Student Loan Forbearance?
Student loan forbearance is a temporary pause on your student loan payments. You get it when you're having financial trouble. During forbearance, you don't have to make monthly payments.
But here's the catch. Interest keeps piling up on your loans. Your balance grows even though you're not paying anything. And mortgage lenders treat forbearance very differently than you might expect.
According to recent data, about 2.5 million borrowers had loans in forbearance as of early 2024. Another 3.3 million had loans in deferment. That's nearly 6 million people who could face problems getting approved for a mortgage.
The Debt-to-Income Ratio Problem
Mortgage lenders care most about one number. Your debt-to-income ratio, or DTI. This compares how much debt you pay each month against how much money you earn.
Most lenders want your DTI below 43 percent. Some allow up to 50 percent in special cases. The lower your DTI, the better your chances of approval.
Your student loan payments count as debt. So do credit card payments, car loans, and any other monthly bills. Add them all up and divide by your monthly income. That gives you your DTI percentage.
Here's where forbearance creates a nightmare for borrowers.
The Hidden Calculation That Kills Your Approval
When your loans are in active repayment, lenders use your actual monthly payment for DTI calculations. If you pay 200 dollars per month on student loans, they count 200 dollars.
But when your loans are in forbearance, lenders can't use zero. Federal rules require them to calculate a payment even though you're not making one.
For conventional loans following Fannie Mae guidelines, lenders must use 1 percent of your total student loan balance as your monthly payment. For FHA loans, they use 0.5 percent of your balance.
Good Read: Mortgage Credit Score Requirements Are Changing: What You Need To Know
Let's look at what this means with real numbers.
Say you have 50,000 dollars in student loans. In active repayment on an income based plan, you might pay just 150 dollars per month. Your lender would count 150 dollars toward your DTI.
Now put those same loans in forbearance. The lender must calculate 1 percent of 50,000 dollars. That's 500 dollars per month. Suddenly, your DTI calculation includes 500 dollars instead of 150 dollars.
According to mortgage guidelines, that extra 350 dollars per month can make or break your approval.
Real Examples of Forbearance Destroying Mortgage Applications
Meet Sarah. She has 60,000 dollars in student loans. She put them on forbearance during a job change. Her actual payment on an income-driven plan would be 200 dollars per month.
Sarah earns 5,000 dollars per month. She has a car payment of 350 dollars and credit card minimums of 100 dollars. She wants to buy a house with a monthly payment of 1,400 dollars.
Let's calculate her DTI with loans in active repayment:
- Student loans: 200 dollars
- Car payment: 350 dollars
- Credit cards: 100 dollars
- Future mortgage: 1,400 dollars
- Total debt: 2,050 dollars
- DTI: 2,050 divided by 5,000 equals 41 percent
She qualifies. Most lenders accept 41 percent DTI.
Now calculate with loans in forbearance:
- Student loans: 600 dollars (1 percent of 60,000)
- Car payment: 350 dollars
- Credit cards: 100 dollars
- Future mortgage: 1,400 dollars
- Total debt: 2,450 dollars
- DTI: 2,450 divided by 5,000 equals 49 percent
She doesn't qualify. That 49 percent DTI is too high for most conventional loans.
The forbearance just cost Sarah her chance to buy a home. And she didn't even know it would happen.
Why Lenders Use These Harsh Calculations
Lenders aren't trying to be mean. They're protecting themselves from risk.
Think about it from their perspective. You put your student loans in forbearance because you can't afford the payments. That's a red flag. It suggests financial problems.
Now you want to take on a huge new debt with a mortgage. The lender worries you might struggle with that payment too.
Also, forbearance is temporary. Eventually, you'll have to start paying those student loans again. Will you be able to afford both the mortgage and the student loans when forbearance ends?
Lenders calculate using 0.5 to 1 percent of your balance to account for this future payment. It's their way of making sure you can handle all your debts at once.
The Deferment Exception
There's one exception where lenders treat paused student loans better. That's deferment.
Deferment happens when you go back to school, serve in the military, or qualify for certain hardship programs. Unlike forbearance, deferment often looks better to lenders.
According to mortgage guidelines, some lenders won't count student loans toward your DTI if they'll stay in deferment for at least 12 months after your mortgage closes.
This makes sense. If you're back in school for two more years, the lender knows those payments won't start during the early part of your mortgage. They feel safer lending to you.
But forbearance almost never gets this treatment. Forbearance is short term and often related to financial problems. Lenders see it as risky.
The Perfect Storm After COVID
The situation got much worse after the pandemic. During COVID, over 40 million borrowers had their federal student loans placed in automatic forbearance. Payments paused in March 2020.
This pause lasted until September 2023. For more than three years, no one made federal student loan payments. Interest didn't accrue either.
When payments restarted, chaos followed. According to recent reports, about 9.6 percent of all student loan debt became 90 plus days delinquent in 2025. That's nearly triple the rate from before the pandemic.
Roughly 2.7 million accounts showed delinquency as borrowers struggled to restart payments. Many people had trouble adjusting to the new payment amounts.
For mortgage applications, this created massive problems. Millions of borrowers had loans coming out of forbearance. Lenders had to calculate those big estimated payments. Many people who could have qualified for mortgages in 2019 suddenly couldn't qualify in 2024.
How Much Money This Actually Costs You
The forbearance penalty doesn't just stop you from buying a home. It forces you into a smaller, less desirable house if you do get approved.
According to data from Bankrate, every 100 dollars added to your monthly debt reduces your buying power by about 25,000 dollars on a typical 30 year mortgage at current rates.
Go back to Sarah's example. Her forbearance added 400 dollars to her calculated monthly debt. That's roughly 100,000 dollars less buying power.
In many housing markets, 100,000 dollars is the difference between a decent house in a good school district and an outdated house in a less desirable area. It's the difference between three bedrooms and two bedrooms.
Some borrowers face even worse situations. If you have 100,000 dollars in student loan debt in forbearance, lenders might calculate 1,000 dollars per month in debt payments. That could reduce your buying power by 250,000 dollars or more.
The Income Driven Repayment Alternative
There's a better option for most borrowers. Income driven repayment plans.
These plans set your payment based on your income and family size. For many people, the payment is much lower than standard repayment. Some borrowers qualify for payments as low as zero dollars per month.
Here's the key difference. When you're on an income driven plan with a documented zero dollar payment, many lenders will count zero toward your DTI. Not the 0.5 to 1 percent calculation they use for forbearance.
Recent federal data shows that over 12 million borrowers are enrolled in income driven repayment plans. These borrowers have an advantage when applying for mortgages.
If your income driven payment is 150 dollars but forbearance would calculate to 500 dollars, switching plans could add hundreds of thousands to your buying power.
The SAVE Plan Complication
In 2023, the Department of Education created a new income-driven plan called SAVE. It offered lower payments than any previous plan. Over 7 million borrowers enrolled.
But the SAVE plan got blocked by the courts. All those borrowers ended up in a special forbearance while courts decided the plan's fate. They're not making payments, but also not accruing interest.
For mortgage applications, this created confusion. Lenders had to decide how to count SAVE plan forbearance. Many treated it the same as regular forbearance, calculating the harsh 0.5 to 1 percent monthly payment.
Some SAVE borrowers who thought they had affordable payments found themselves unable to qualify for mortgages. Their loans technically counted as forbearance, not active repayment.
What Happens When Forbearance Ends
Eventually, forbearance always ends. You have to start making payments again. For most people, this happens within 12 months.
When forbearance ends, and payments restart, your mortgage approval chances can improve. But only if you can document the new payment amount.
You'll need to provide your lender with an updated payment statement. Make at least one payment on the new plan. Then reapply for your mortgage with proof of the lower payment.
But timing matters. If your forbearance ends right when you're trying to buy a house, you might miss out on your dream home. Other buyers will submit offers while you wait for your loan status to change.
Tips to Work Around Forbearance Problems
You have options if student loan forbearance is blocking your mortgage approval.
Switch to Income Driven Repayment: Contact your loan servicer immediately. Apply for an income driven plan. Get documentation showing your actual monthly payment. This works even if your payment is zero dollars.
Wait Until Forbearance Ends: If forbearance ends soon, it might be worth waiting. Once you're in active repayment with a documented low payment, reapply for the mortgage.
Pay Down Other Debts: Lower your DTI by eliminating other debts. Pay off credit cards. Finish your car loan. Every debt you eliminate gives you more room for the mortgage.
Increase Your Income: A second job or raise improves your DTI. If you earn more, the same debts take up a smaller percentage of your income.
Find a Co Borrower: Adding someone with good income and low debt to your application can help. Their income offsets your debt in the DTI calculation.
Shop Different Loan Programs: Some programs treat forbearance better than others. FHA loans use 0.5 percent instead of 1 percent. VA loans have different calculation methods. Ask lenders about all your options.
Provide Extra Documentation: Some lenders will work with you if you prove your forbearance was temporary and you're now stable. Bring pay stubs, bank statements, and evidence of financial recovery.
The Bigger Picture
Student loan forbearance affects more than individual mortgage applications. It impacts the entire housing market.
According to the National Association of Realtors, 37 percent of first time homebuyers also have student loan debt. When forbearance calculations block these buyers, it reduces demand for starter homes.
This hurts the housing market overall. Fewer buyers means slower home sales. It especially impacts affordable housing segments where first time buyers shop.
The problem also creates inequality. Wealthier borrowers can often work around forbearance issues. They might have relatives who can co sign or gift larger down payments. They have better credit and higher incomes that offset the DTI problem.
But average borrowers get stuck. They face years of delayed homeownership because their forbearance creates an invisible barrier.
Looking Forward
The relationship between student loans and mortgages needs reform. Current rules punish borrowers for using forbearance, even when it's the right financial choice at the time.
Some housing advocates suggest lenders should use actual income driven payments instead of arbitrary percentages. Others want forbearance treated more like deferment in certain situations.
Until rules change, borrowers need to understand the system. Knowledge is power. Know how lenders calculate student loan debt. Plan accordingly before applying for a mortgage.
If you're considering forbearance, think about your future homebuying plans first. That temporary payment relief could cost you a house later. Often, income driven repayment gives you the same monthly relief without the mortgage approval penalty.
Final Thoughts
Student loan forbearance seems helpful on the surface. You get to pause payments when money is tight. But the hidden cost shows up when you try to buy a home.
Lenders see forbearance as a risk flag. They calculate imaginary payment amounts that can destroy your debt to income ratio. What should be a small monthly payment suddenly becomes a huge obstacle.
The good news is you have options. Income driven repayment plans often work better. Strategic planning can help you avoid or minimize the damage. Understanding the rules gives you power to work around them.
Don't let student loan forbearance quietly kill your dream of homeownership. Take action now to protect your future mortgage approval chances.