Gustan Cho The Mortgage Expert,
Publish On: July 18, 2023
This guide covers buying a house with a high DTI. Many homebuyers do not realize that you can be buying a house with a high DTI is possible without paying the outstanding debts. The team at Gustan Cho Associates are experts in helping homebuyers who buy a house with a high DTI. This holds especially true for first-time homebuyers. Student and car loans are two of the largest monthly debts for potential homebuyers that, get them a high debt-to-income ratio. Post-high school education is very expensive.
Most college students cannot afford college without taking out student loans. The average costs and fees for a four-year college education at a public college or university average $40,000 annually. This includes tuition, housing, and fees. The average costs and fees for a four-year college education at a private college or university average $75,000 annually. This includes tuition, housing, and fees—multiply these annual costs by four. Most college programs are four-year programs.
An undergraduate degree does not go far these days. Many college graduates proceed to graduate or professional schools. This adds more student loan debts than the undergraduate student loans already incurred. The average starting salary of a college graduate for 2020 was $48,980 a year.
Advice on Buying a House With a High DTI
Many first-time homebuyers with high student loan debts do not even consider becoming a homeowner. They are under the impression they will never be able to afford a home with large student loan debts. This is not true.
Jammi Cash of Gustan Cho Associates is an expert and seasoned licensed loan originator licensed in over a dozen states. Jammi Cash has helped countless borrowers with high student loans qualify for a mortgage. Jammi said.
Many homeowners have high student loan debts and can easily afford housing payments. There are many instances where your mortgage payment on the home you own can be lower than the rental payment. The following paragraphs will discuss how much money is needed to purchase a home.
Down Payment on a Home Purchase
Most people who want a house can easily afford the housing payments on their proposed new home purchase. However, their issue is the upfront cash for the down payment or closing costs. The minimum down payment requirements depends on the particular home mortgage program.
Many borrowers buying a house with high DTI due to high student loan balances normally steer away from the topic of buying a home. This is because they think it is a fantasy and dream to be able even to consider buying a house with a high DTI due to large outstanding student loan debts.
Many first-time homebuyers often feel they need a 20% down payment to purchase a home. Again, this is not the case. Homebuyers can qualify for a home purchase with as little as 3% to a 5% down payment. VA and USDA loans do not require a down payment requirement. Lenders offer 100% financing on VA and USDA loans.
What Other Funds Besides The Down Payment Is Required To Buy a House
All purchase and refinance mortgage transactions require closing costs for homebuyers and sellers. The good news is most of our borrowers who purchase a home do not need to come up with any funds for closing costs. Does this mean there are no closing costs? No. There are closing costs.
Closing costs are any costs and fees required to close the home loan. Again, all closing costs are not the same. It is dependent on the city or municipality and the state where the property is located.
Closing costs are not a set percentage like the down payment. Closing costs can vary on each home purchase transaction. It depends on the type of property, the county the property is located, the loan size, discount points, and other factors. However, most of our homebuyers obtaining a mortgage at Gustan Cho Associates get seller concessions from the home seller to cover all of the buyer’s closing costs.
How Mortgage Lenders Calculate Debt-To-Income Ratio on Student Loans
HUD, the parent of FHA, no longer exempts deferred student loans that have been deferred for longer than 12 months from debt-to-income ratio calculations. HUD accepts income-based repayment (IBR Payments). How can you pay your outstanding student debts over four years by making a modest $48,980? Many feel it is not even remotely possible to buy a home with large student loan debts. However, this is not true.
If the homebuyer is short of closing costs with a seller’s concession, the lender can offer a lender credit in place of a higher interest rate and can cover the shortage of closing costs.
HUD requires mortgage underwriters to take 0.50% of the outstanding student loan balance and use that figure as a hypothetical monthly debt when calculating the borrower’s DTI. Suppose the borrower has a fully amortized monthly payment over an extended term (25 years). In that case, mortgage underwriters can use that figure as the borrower’s monthly student loan debt versus the 0.50% of the outstanding student loan balance. FHA student loan guidelines apply to USDA loans. FHA and USDA have the same student loan guidelines.
How Underwriters Calculate Student Loan Debts in Debt-To-Income Ratio Calculations
The VA exempts deferred student loans that have been deferred for over 12 months. VA also accepts fully amortized student loan payments over an extended term. For student loans that have not been deferred for longer than 12 months or in an income-based repayment plan, the VA requires the mortgage underwriter to take 5.0% of the outstanding student loan balance.
VA loans are the only mortgage loan program that is deferred student loans that has been deferred longer than 12 months to be exempt from debt-to-income ratio calculations.
Divide the number that results after taking 5% of the outstanding student loan balance by 12. The resulting figure is the monthly hypothetical debt used in calculating the borrower’s student loan debt. Fannie Mae and Freddie Mac must take 0.5% of the outstanding student loan balance on deferred student loans. This number is a hypothetical monthly debt for debt-to-income ratio calculations. Fannie Mae and Freddie Mac allow income-based repayment (IBR Payments) on conventional loans. This includes zero payment IBR payments.
Hurdles For Homebuyers Buying a House With a High DTI
The team at Gustan Cho Associates are experts in helping first-time homebuyers buy a home with large student loan debts. Our team of experts at Gustan Cho Associates can be creative in structuring a home mortgage program for borrowers with high student loan debts and who qualify for a home loan. Here are examples of possible closing costs a homebuyer may encounter:
- Prepaid (Escrow for property taxes or homeowners insurance)
- Origination charges and discount points
- Processing and Underwriting fees
- Attorney’s fees
- Appraisal fees
- Title charges
- Credit reporting fees Rapid rescore
- charges
- Transfer stamps charged by the village, town, city, or county
- Inspection fees
- Any other fees, costs, or charges associated with the purchase and closing of the home loan
Renters thinking of buying a house with a high DTI and want to qualify for a home mortgage with a national five-star mortgage company licensed in multiple states with no overlays, please get in touch with us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
