This ARTICLE On Freddie Mac Student Loan Guidelines On Conventional Loans Was PUBLISHED On August 9th, 2019
Conventional Loans are called Conforming Loans because they need to conform to Fannie Mae and/or Freddie Mac Agency Mortgage Guidelines.
- Conforming Loans are not government loans
- They are private loans originated and funded by private mortgage lenders and banks
- Many borrowers ask if conventional loans are private loans why do they need to Conform to Fannie/Freddie Guidelines?
- The reason is in order for private lenders to sell their conventional loans on the secondary market to Fannie/Freddie, they need to conform to their guidelines
- Fannie Mae and/or Freddie Mac will not purchase conventional loans that do not conform to their lending guidelines
- All mortgage lenders fund their loans with a warehouse line of credit
- Once they fund the loan, they package these loans up and resell them to the secondary market
- The secondary market will not purchase loans that do not conform to Fannie Mae and/or Freddie Mac
- After selling the loans, they use the proceeds to replenish and pay down their warehouse lines of credit and reuse the lines for new loans
In this article, we will cover and discuss Freddie Mac Student Loan Guidelines On Conventional Loans.
Obstacles With Student Loans When Qualifying For A Mortgage
It costs a lot of money to attend college.
- It is very easy to rack up over $100,000 or more in a four-year college education
- Most college graduates have high student loan balances
- Many graduates of graduate and/or post-college degrees will easily amass student loan balances well over six figures
- Borrowers with high student loan balances may need to opt for Conventional versus FHA Loans
Per Fannie Mae and Freddie Mac Student Loan Guidelines, Conventional Loans accepts Income-Based Repayment Plans (IBR Payments). FHA Loans do not allow IBR Payments.
HUD Versus Freddie Mac Student Loan Guidelines
Deferred student loans that have been deferred for more than 12 months is only accepted by The Department of Veterans Affairs (The VA) for VA Loans.
- All other loan programs do not accept deferred student loans
- This holds true for extended deferment
- FHA and USDA have the same student loan guidelines
- With FHA, lenders will only allow a fully amortized monthly payment over an extended-term (normally 25 years)
- Or if the borrower is not on a current fully amortized monthly payment plan, a letter stating a hypothetical fully monthly payment over an extended plan will suffice
- Income-Based Repayment (IBR) is not allowed on FHA Loans
With conventional loans, lenders will allow Income-Based Repayment (IBR) as long as the minimum payment reports on the consumer credit report.
Debt To Income Ratio Mortgage Guidelines
Debt to income ratio is the total amount of debts a borrower has divided by the gross monthly income.
Here is the debt to income ratio lending guidelines on the particular loan programs:
- HUD allows a maximum of a 46.9% front end and 56.9% DTI to get an approve/eligible per automated underwriting system
- The VA does not have a maximum debt to income ratio cap on VA Loans
- USDA allows a maximum of 29% front end and 41% back end debt to income ratio caps on USDA Loans
- Fannie Mae and Freddie Mac allow up to a 50% debt to income ratio cap on Conventional Loans
- There is no front end debt to income ratio cap on Conventional Loans
Mortgage Borrowers with high student loan debts and high debt to income ratios may need to go with conventional loans. For more information about the contents of this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com.
