Will having my student loans in forbearance affect getting a mortgage?
Having your student loans in forbearance is not considered negative, but your mortgage lender may still take them into consideration when deciding whether to approve you for a home loan.
As part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, created to provide relief for consumers who were struggling due to the COVID-19 pandemic, federal student loans were automatically placed into forbearance.
If your student loan account is currently in forbearance, it means that you do not have to make the regularly scheduled payments. While in forbearance, the loan payments will continue to be reported as current for the duration of the forbearance period. Originally, payments were suspended until September 2020, but the forbearance period has since been extended through December 2020. During this time, interest will not accrue.
Although no payments are due during the forbearance period, you will still have the option to continue making payments of any amount as you are able. This is important to note because although you will not be penalized if you cannot afford to make payments during this time, the amount owed will be tacked on the end of your repayment plan and can increase the life of your loan. For that reason, it may be wise to take advantage of the temporary 0% interest and consider paying down the balance while still in forbearance. You can also choose to forgo the forbearance option altogether and resume making regular payments to your loans instead.
How Will My Loans Appear on My Credit Report?
For as long as your account remains in forbearance, the status will continue to appear as it did when the account was placed into the agreement. This means that if your accounts were current when the forbearance period began, the loan servicer will continue to report them as current until you are set to resume regular payments. Your credit scores will not be penalized for not making payments during this time.
Even though you may not be required to make monthly payments at this moment, potential mortgage lenders may still consider the total amount owed and factor in what your monthly payment amount will be once your payments resume. So it's best to plan ahead for how you will begin repaying the loans once the forbearance period is over.
Whether your student loans will impact your ability to qualify for a mortgage loan with favorable rates and terms depends on the payment history on the accounts prior to forbearance and the strength of the rest of your credit history, as well as your mortgage lender's specific criteria.
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Jennifer White, Consumer Education Specialist