Buying a House With High Student Loan Debts
In this blog, we will discuss and cover qualifying for a mortgage with buying a house with high student loan debts. Buying a house with high student loan debts is often a hurdle. This holds especially true for borrowers with advanced degrees and high student loan debts. With the exception of VA loans, lenders will still count student loan debts in deferment.
Income-Based Repayment Plans on Student Loans
Every loan program has its own mortgage guidelines when it comes to student loan debts. FHA now allows income-based repayment plans like conventional loans. The only loan program that allowed income-based repayment was conventional loans. Many home buyers with high student loan debts often give up on qualifying for a mortgage. However, Gustan Cho Associates have creative ways for homebuyers with buying a house with high student loan debts.
Hurdles With Buying a House With High Student Loan Debts
As mentioned earlier, with the exemption of VA loans, deferred student loans that are in deferment for longer than 12 months are no longer exempt from DTI calculations. Buying a house with high student loan debts is not just a challenge for home buyers right out of college but for many homebuyers as well.
Can You Buy a House With a Lot of Student Loan Debts?
The team at Gustan Cho Associates has helped countless borrowers with buying a house with high student loan debts. We will cover the various strategies and loan programs available for borrowers with buying a house with high student loan debts. One of the most frequently asked questions we get at Gustan Cho Associates is can you buy a house with a lot of student debt?
It is very important for borrowers with buying a house with high student loan debts to understand the various loan programs and their student loan guidelines.
Can I Get a Mortgage Buying a House With High Student Loan Debts
The cost of post-high school education is very high. The cost of a college education has been skyrocketing in the past 10 years. The average cost of a four-year college education at a state college and/or university is $40,000 per year. This includes tuition, room, board, and other costs associated with a full-time student. For a private college and/or university, the cost can easily double.
The High Cost of Higher Education and the Impact on Qualifying for a Mortgage
The average cost for a full-time student to attend a private college and/or university exceeds $65,000 per year. Multiply that annual cost of attending college by 4 to 5 years, and it can easily add up. Most students can only attend college by obtaining loans. Now if the student wants to attend graduate or a professional school after receiving their bachelor’s degree, it could cost an additional $100,000 or more on top of the undergraduate cost.
Homebuyers with student loans in the six figures are very common. The right-hand rule is to take 0.50% of the outstanding student loan balance and use that figure as a hypothetical debt when mortgage underwriters calculate DTI. However, we will show our viewers the various options available when qualifying for a mortgage with High Student Loan Debt And Buying A House.
What Experts Say About Buying a House With High Student Loan Debts
Buying A House with high student loan debts, and getting a mortgage can be a problem. This holds especially true for borrowers with high student loan debt and making low wages. For example, an attorney can be working for a government agency and make only $70,000 per year. However, the government employee may have over $200,000 in student loan debts. This type of case scenario is very common. Mike Gracz of Gustan Cho Associates, an expert in helping borrowers with high student loan debts, said the following:
Total student debt owed now tops $1.5 trillion, more than double what it was a decade ago. While the typical student loan borrower owes between $10,000 and $25,000, the New York Federal Reserve Bank reports that over 7 million Americans owe more than $50,000 in student loans. While one may associate student loan debt with recent grads, the New York Fed’s figures show that it has become a lingering problem. Seventy percent of student loan debt outstanding is owned by people aged 30 and over. In fact, the amount owed by people aged 40 and over exceeds the amount owed by people under 30. All of this has a dampening effect on homeownership in general. As young adults graduate with student lans that may take years to pay off, it can delay their entry into the housing market. Student loan debt disproportionately impacts young households, which are typically the heart of the first-time homebuyer market.
Mortgage Guidelines on Student Loan Debts
Government and conventional loans have their own specific mortgage guidelines on student loan debts. Student loans in deferment are no longer exempt from debt-to-income ratio calculations with the exception of VA loans. Lenders want to make sure borrowers have the ability to repay their mortgages with high student loan debts.
Mike Gracz of Gustan Cho Associates said the following:
In the following paragraphs, we will cover the individual mortgage guidelines on student loan debts.
HUD Guidelines on Student Loan Debts
HUD, the parent of FHA, no longer exempts student loan debts that are deferred longer than 12 months on FHA loans. Income-based repayment is now allowed on FHA loans. Mortgage underwriters are required to take 0.50 percent of the outstanding student loan balance and use that figure as a monthly hypothetical payment when calculating debt-to-income ratios.
The second option is to get a written statement from the student loan provider stating what the hypothetical fully-amortized monthly payment over an extended term will be. Most extended terms are 25 years. It needs to be fully amortized. Zero monthly payment via IBR payments is now allowed on FHA loans. USDA Guidelines on student loans are exactly the same as FHA Guidelines.
Fannie Mae and Freddie Mac Student Loan Mortgage Guidelines
Conventional loans are often referred to as conforming loans. This is because conventional loans need to conform to Fannie Mae and/or Freddie Mac mortgage guidelines. Conventional loans are not government loans. However, they need to conform to Fannie and/or Freddie’s guidelines if the lender wants to sell the mortgages on the secondary market to Fannie/Freddie. If the loans do not conform to Fannie and/or Freddie Agency Guidelines, Fannie/Freddie will not purchase them on the secondary market.
Income-Based Repayment Plans For Mortgage
Both FHA and conventional loans allow Income-Based Repayment plans. Borrowers with high debt-to-income ratios and IBR payments may need to use conventional and FHA loans. Homebuyers with high student loan debts with high debt-to-income ratio can see if the student loan provider can get them a zero IBR payment so the student loan debt does not count.
Conforming Guidelines on Student Loans
Here are the basic Conforming Guidelines on student loan debt:
- Deferred student loans are not exempt
- Income-based repayment plans are allowed
- Or 0.50 percent of the outstanding student loan balance will be used if the borrower is not on an IBR and on deferment
- The second option is to get a written statement from the student loan provider stating what the hypothetical fully-amortized monthly payment over an extended term will be
- Most extended terms are 25 years
- It needs to be fully amortized
If the borrower is on a zero monthly payment income-driven IBR plan, the zero payment will be the figure used by the mortgage underwriter when calculating the borrower’s debt-to-income ratios.
VA Mortgage Guidelines on Student Loan Debt
VA loans are the only loan program that exempts deferred student loan debts that is in deferment for longer than 12 months. Otherwise, the following terms apply. The VA does not allow income-based repayment plans. Deferred student loans are only allowed if the deferment is longer than 12 months. Otherwise, the mortgage underwriter needs to take 5.0 percent of the student loan balance and divide that figure by 12. The resulting figure is the number used as the borrower’s hypothetical monthly payment. The second option is to get a written statement from the student loan provider stating what the hypothetical fully-amortized monthly payment over an extended term will be. Most extended terms are 25 years. It needs to be fully amortized.
Non-QM loans are an alternative finance loan program that is becoming very popular. Borrowers who cannot qualify for government and conventional loans often can qualify for Non-QM loans. Non-QM loans exempt deferred student loans that are in deferment for longer than 12 months. For more information about this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at firstname.lastname@example.org. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
October 27, 2022 - 6 min read