Updated VA Guidelines On Deferred Student Loans

What Are VA Guidelines On Deferred Student Loans

One of the best benefits available to Veterans of the United States Armed Services is that they are eligible to qualify for VA Loans. VA Loans is hands down the best mortgage loan program available today where there is no down payment requirement and the mortgage interest rates on VA Loans is one of the lowest mortgage rates than any other mortgage loan program. VA does not originate, fund, or service VA Loans. VA insured VA approved mortgage lenders, who are banks and private mortgage lenders, against default from VA mortgage loan borrowers. Unfortunately, VA Loans are only for Veterans of the U.S. Armed Forces who have a Certificate of Eligibility  . Many VA mortgage loan borrowers who had a foreclosure with a prior VA Loan may not qualify for another VA Loan  but that does not mean that they will not qualify for another mortgage loan program. There are many times where a VA mortgage loan borrower may not qualify for a VA Loan due to VA Guidelines and decide to go with a FHA Loan instead and may refinance to a VA Loan at a later date.

VA Guidelines On Deferred Student Loans: Deferred Student Loans And Debt To Income Ratios

Student loan debt is calculated by mortgage lenders in the calculations of the mortgage borrowers debt to income ratios. What are deferred student loans? Deferred Student Loans are student loan payments that have been deferred by the student loan provider and no payments need to be made for a certain period of time. Student loans can be a major hurdle when it comes to qualifying for a mortgage loan. There are folks who have tens of thousands of dollars of student loan balances, especially those with graduate and/or professional educations. A medical doctor, dentist, or lawyer can have student loan balances of over $100,000 plus. Most mortgage loan programs require that student loan debt be calculated in the calculations of the mortgage loan borrower’s debt to income ratios. Conventional Loans always required that student loan debt payments be calculated in the calculations of the Conventional mortgage borrowers debt to income ratios, even deferred student loans. On cases of deferred student loans, even student loan payments that has been deferred by 12 or more months, Fannie Mae and Freddie Mac, the two mortgage giants who sets Conventional mortgage lending guidelines, require that either a proposed monthly payment of what the student loan debt payment will be once the student loan debt is out of the deferment by the student loan provider and if the student loan provider cannot provide a monthly amount, then 2% of the outstanding student loan balance will be used as a monthly debt payment in the calculations of the mortgage borrower’s debt to income ratios. This can throw off any mortgage loan borrower who has a large student loan balance such as a recent medical doctor, dentist, or attorney who has a substantial student loan debt balance. For example, it is not uncommon for a medical doctor to have over $200,000 worth of student loan debt. $2% of $200,000 is $4,000 and even if the student loan debt balance is deferred by more than 12 months, mortgage lenders is required to use the $4,000 even though the borrower is not obligated to pay on it just yet due to the deferment of the student loans.

VA Guidelines On Deferred Student Loans: FHA Loans And VA Loans

FHA Guidelines On Deferred Student Loans used to exempt deferred student loans that has been deferred by at least 12 or more months. However, under HUD 4000.1 FHA Handbook which was launched on September 14, 2015, deferred student loans that has been deferred for 12 or more months are no longer exempt from the FHA mortgage borrower’s debt to income ratio calculations. Now with FHA, FHA borrowers with deferred student loans that has been deferred 12 or more months will need to have a payment amount provided by the student loan provider that reflects what the student loan debt monthly payment will be in writing. If the FHA borrower cannot provide that, then the FHA mortgage lender will use 2% of the outstanding student loan debt balance and use that as a monthly debt payment in the calculations of the borrower’s debt to income ratios.

VA Guidelines On Deferred Students Loans are extremely generous. If you have deferred student loan debts that is deferred for at least 12 months or longer from the date of your VA Loan closing, then the student loan debt payments will be exempt from your debt to income ratios calculations. This is a huge benefit for VA Loan Programs where it does not apply to any other mortgage loan program.

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3 Comments

  1. Mona Woolever says:

    What if the student loan is deferred for less than 12 months but we cannot obtain a anticipated payment amount. Does VA allow us to use a percentage of the unpaid balance to calculate a payment as FHA and Conventional do ? If so, what percentage amount does VA require us to use >

    • Gustan Cho, NMLS 873293 says:

      All you need to do is to contact the student loan provider and ask them for an extended amortized monthly payment dollar amount. If they cannot provide that, then 1% of the outstanding student loan balance is used to calculate your debt to income ratio

    • Gustan Cho, NMLS 873293 says:

      VA is the only loan program that will not use deferred student loans as long as the student loans has been deferred for 12 or more months. If student loans has been deferred for less than 12 months, then that student loan payment will be used as part of your debt to income ratio

      Gustan Cho NMLS 873293