The Quick Read: There is no single best program, because each one counts a deferred student loan differently. Fannie Mae, Freddie Mac and FHA generally make the underwriter count a payment for a deferred loan, though Fannie Mae accepts a documented zero payment on an income-driven plan. VA is the one program with a documented exclusion for long deferments. The best program for your situation depends on how your loans are counted, how much equity you keep, and which program’s leverage cap you can live with.
What Does “Deferment” Do to a Cash-Out Refinance?
A deferment pauses your student loan payments. Your bills may show nothing due, but the mortgage underwriter does not treat that as zero debt. Underwriters measure your debt-to-income ratio (DTI), which is your monthly debt payments divided by your monthly income. A deferred loan still has to go into that ratio in most programs.
Cash-out refinance estimate
The starting figures are an example value with a balance and a cash request in proportion. Replace them with yours.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the agency cap on a one-unit principal residence, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a cash-out refinance quote; a cash-out loan is priced by the lender at lock. The cash available is the loan the program cap allows less the balances paid off, before closing costs, which are not included. The HELOC line is the program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages.
A cash-out refinance replaces your current mortgage with a bigger one and hands you the difference. You can use that cash to pay off student loans at closing, and the payoffs go straight from loan proceeds to the servicer. Paying off student debt is optional, since some households use the cash for other goals.
Deferment, forbearance and income-driven repayment are three different statuses. Deferment and forbearance pause payments. Income-driven plans set a payment based on income, and that payment can be zero. Underwriters treat each a little differently, which is why the same household can pass in one program and miss in another.
That gap between the bill and the mortgage file can shrink how much you are approved for.
Key Terms Defined
Deferment: A period when your student loan servicer lets you pause payments, often with interest still building on some loan types.
Forbearance: A pause or reduction in payments that your servicer grants, usually for hardship.
Income-driven repayment (IDR): A federal plan that sets your monthly payment as a share of your income, sometimes at zero.
Debt-to-income ratio (DTI): Your total monthly debt payments divided by your gross monthly income.
Seasoning: The minimum time you must have owned the home or held the loan you are paying off.
LTV (loan-to-value): The new loan balance divided by the home’s appraised value.
Limited cash-out refinance: A refinance that pays off your existing loan and costs, with only small incidental cash back.
How the Underwriter Counts a Deferred Loan, Program by Program
Start here, because this step decides most outcomes. The underwriter first looks at the credit report. If it shows a payment above zero, that payment is generally used. If it shows zero or nothing, the program’s own rule takes over.
| Program | How a deferred loan is counted |
|---|---|
| Fannie Mae | 1% of balance, a fully amortizing payment, or a documented zero IDR payment |
| Freddie Mac | A payment above zero for all loans; confirm the current zero-payment IDR treatment |
| FHA | Documented payment if above zero; 0.5% of balance if zero |
| VA | Excluded if deferred 12+ months past closing; otherwise 5% of balance ÷ 12 |
Take each in turn.
Fannie Mae. Its Selling Guide lets the lender use 1% of the outstanding balance for deferred or forbearance loans, even if that is lower than a fully amortizing payment. The lender can also use a fully amortizing payment from the documented terms. If you are on an income-driven plan, the lender may get documentation showing that your actual required payment is zero.
Freddie Mac. Bulletin 2023-18 requires an amount greater than zero in the DTI for all student loans, income-driven plans included. It applied to settlements on or after January 4, 2024. Freddie’s current guide text on income-driven plans with a zero payment has shifted over time, so ask your loan officer which section governs your file before you count on a zero payment. Do not rely on older advice that Freddie uses 0.5% of the balance. That was an earlier approach.
FHA. Under HUD Mortgagee Letter 2021-13, the lender uses the documented payment when it is above zero. When the payment is zero, it uses 0.5% of the outstanding balance. The older 2% rule for deferred loans was replaced.
VA. VA Pamphlet 26-7 says no monthly payment needs to be counted if you give written evidence that the debt stays deferred at least 12 months past closing. If the loan is in repayment, or starts within 12 months of closing, the lender uses an anticipated payment of 5% of the balance divided by 12. Some lenders add their own DTI caps on top of VA’s rules, so lender choice matters here.
The Misconception That Costs People the Most
“Deferred loans don’t count.” Wrong for most programs. Fannie Mae, Freddie Mac and FHA all put a payment in the calculation. VA’s exclusion is the main exception, and it needs paperwork showing the deferment runs 12 months or more past closing.
The other common mistakes are smaller but still trip people up:
- Thinking an FHA Streamline or VA IRRRL gives you cash. It does not.
- Assuming a cash-out refinance always saves money.
- Believing the student loan feature lets you take unlimited cash back.
Where Cash-Out Programs Set Their Limits
Across the wholesale programs we place files with, a conventional cash-out refinance goes to 80% LTV on a one-unit principal residence. Two- to four-unit principal residences, second homes and investment properties go to 75%. Occupancy sets the leverage, so the same equity reaches different amounts depending on how you use the home. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Two timing rules matter. The first mortgage being paid off must be at least 12 months old, measured note date to note date. Fannie Mae’s capital markets notice states this for notes dated on or after April 1, 2023, and Freddie’s Bulletin 2023-18 carries the same 12-month test. Also, you generally need to have been on title for 6 months, with exceptions for delayed financing, inheritance and legal awards.
One wholesale lane is the exception to the 80% limit, reaching 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence, a conforming balance and its own six months of seasoning. In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution, and that lane is not written there. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Mortgage insurance is required above 80% LTV on the agency path, except on the no-mortgage-insurance wholesale lane described above. You can ask to cancel it at 80% of the original value, and the servicer must end it automatically at 78%, subject to payment history and other conditions.
Credit matters too. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans run at 36% or 45%, depending on score and reserves. Waiting periods after credit events are agency rules: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu, and shorter with documented extenuating circumstances.
All of these figures are subject to lender guidelines and full file review.
The Student Loan Cash-Out Feature (and Its Catch)
Fannie Mae has a named option that pays off student loans through the refinance. Under the Selling Guide’s cash-out rules, the cash-out pricing adjustment is waived when all conditions are met. Those conditions include these:
- The loan must be underwritten in Desktop Underwriter.
- Standard cash-out leverage limits still apply.
- Only purchase-money subordinate liens may be paid off alongside the student loans.
- Cash back to you is capped at the greater of 1% of the new loan or $2,000.
This is not a general cash-out. It is built to pay student debt, and the lender must confirm the conditions outside the automated system because it cannot flag these loans on its own.
So which path fits? A general cash-out suits someone who wants flexible cash for more than student loans. The student loan feature suits someone who wants the pricing waiver and plans to pay loans only. Both still count your deferred loans in DTI when you qualify.
Streamlines Are Not Cash-Out Loans
The FHA Streamline and VA IRRRL are for people who already hold an FHA or VA loan and want a lower payment. They are not cash-out products.
The FHA Streamline generally needs no appraisal and only a limited credit review, but it requires a net tangible benefit to the borrower. FHA rate-and-term goes to 97.75% with an appraisal. The VA IRRRL applies to an existing VA loan, carries a 0.5% funding fee unless you are exempt, needs no VA appraisal, and requires a net tangible benefit. It has a seasoning rule of the later of 210 days and 6 payments.
If your goal is cash for student loans, these will not deliver it. A VA borrower who wants cash needs a VA cash-out or another cash-out program.
What You Give Up When You Pay Off Student Loans With a Mortgage
This is the section most borrowers need to read twice. Paying off federal student loans with mortgage debt typically ends income-driven repayment, forgiveness eligibility and deferment or forbearance options. A deferment is a safety net, and the payoff removes it. Check studentaid.gov for how your specific loans work before you decide.
You also change the risk. Student debt is unsecured. A mortgage is secured by your home. Missing mortgage payments can end in foreclosure.
And a deferred balance turns into a real monthly obligation. You trade a deferred balance with no payment due now for a mortgage payment that starts right away.
Cash-out costs are real. A cash-out can also swap a lower-rate mortgage for a higher-rate one. Your Loan Estimate shows the full costs and cash to close.
Equity matters as well. A cash-out raises the balance against your home and lowers your cushion. That matters most when leverage caps are tight.
When Does It Make Sense, and When Doesn’t It?
It can make sense when:
- Your student loans are private, with no income-driven or forgiveness options to lose.
- Your student debt carries a high cost and you have solid equity.
- You can afford the new mortgage payment comfortably, with your deferred payment counted.
Think twice when:
- You are in deferment because of hardship, and your income could stay uncertain.
- You expect forgiveness on federal loans.
- You may return to school.
- Your current mortgage terms are better than anything a cash-out would offer.
Consider the alternatives too. A refinance leaves out the cash. Refinancing the student loans on their own keeps your mortgage untouched. A home equity option leaves your first mortgage as it is.
What to Gather Before You Apply
Servicer paperwork drives this file. Collect these items:
1. A current statement for each student loan showing the balance, status (deferment, forbearance or income-driven) and payment terms.
2. Written proof of any zero-payment income-driven plan, and for VA files, written evidence of a 12-month-plus deferment.
3. Your existing mortgage statement and note date, so seasoning can be checked.
4. A list of any second liens or home equity lines on the property. Paying off a line you used for other purposes can change how the loan is classified.
5. Recent income documents and basic occupancy details.
How to Judge “Best” for Your Situation
Because the best program for your situation depends on your numbers, use these five tests:
1. Deferred-payment treatment: how does the program count your loans in DTI?
2. Leverage: how much equity can you reach at your occupancy?
3. Seasoning: does your current loan meet the 12-month test?
4. Credit: does your decision score clear the floor?
5. Safety net: what protections do you lose on federal loans?
A broker that shops several wholesale lenders can run your file against each program and match it to the one that fits. Lendmire’s cash-out refinance programs page lays out the options it arranges.
Frequently Asked Questions
Can I get a cash-out refinance if my student loans are in deferment?
Yes, in many cases, but the deferred loans still count against you. Freddie Mac and FHA require a payment above zero in the DTI, though Fannie Mae accepts a documented zero payment on an income-driven plan, and VA excludes the loan only with proof of 12-plus months of deferment past closing. Approval depends on your full file.
Does deferment remove student loans from my debt-to-income ratio?
Usually not. The underwriter uses a program-specific placeholder, such as 1% of the balance at Fannie Mae or 0.5% at FHA when your payment is zero. A documented zero income-driven payment may be accepted by some programs.
Can I take unlimited cash on the student loan cash-out feature?
No. Fannie Mae caps cash back to you on that feature at the greater of 1% of the new loan or $2,000. The loan proceeds go to pay off the student loans and any allowed liens.
Will I lose federal student loan protections?
Generally yes. Paying off federal loans with mortgage debt typically ends income-driven repayment, forgiveness eligibility and deferment options. Review your loan details at studentaid.gov first.
Can an FHA Streamline or VA IRRRL pay off my student loans?
No. Those are streamline products for lowering the payment on an existing FHA or VA loan, and they do not provide cash to you.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Everything above is subject to lender guidelines and full file review and is not a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Selling Guide B3-6-05, Monthly Debt Obligations
2. Freddie Mac Bulletin 2023-18
3. HUD Mortgagee Letter 2021-13
5. Fannie Mae, Updates to Cash-Out Refinance Eligibility
6. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Best Cash-Out Refinance Program to Buy a Rental Property · Best Cash-Out Refinance Program After Converting a Detached Garage to an ADU · Best Cash-Out Refinance Program to Leverage Home Equity Without Selling
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.