Student loan payments are calculated by mortgage underwriters as part of the home loan borrower’s monthly debt to income ratios. Deferred student loans can be waived in debt to income calculations for FHA loans if and only if the mortgage loan borrower has the student loans deferred for at least 12 months. However, with conventional loans, deferred student loans are counted as part of the borrower’s debt to income calculations even if the student loans are deferred for more than a year. Those with advanced degrees such as medical or law degrees can have as much as $100,000 in student loans and their monthly payments may be extremely high where the monthly student loan payments may not qualify them for a mortgage loan. This is many times the case where a newly graduated doctor or attorney just lands an entry level job with a promising career and potential salary boost by the time the deferment period is over and start paying on their student loan payments. In situations like these where the mortgage loan borrower has deferred student loans and just started a new job but wants to purchase a home, a FHA insured mortgage loan may be the only option.
Deferred Student Loans: FHA Eligibility
FHA will exempt deferred student loans from the mortgage loan borrower’s debt to income ratio calculations as long as the student loan has been deferred for at least 12 months. Those who are employed but are also going to school consistently can normally get an extension on their student loans. Many times a mortgage loan borrower will have their student loan deferment expire in a few months and as long as they are in school, the can request a deferment extension and would normally get it. Remember, that FHA is extremely strict on the 12 month deferred student loan requirement so I strongly suggest that you make sure that the student loan provider will get you a deferment extension before you proceed in purchasing a home or having a home under contract. Those who have been out of school for a while and have their deferment expiring in less than a year need to contact their student loan provider and make sure that they will get an extension on their student loan for at least 12 months. If the student loan provider will not grant an extension on their student loan deferment where their student loan is deferred for at least 12 months, the student loan payment cannot be exempt in calculating their debt to income ratios.
Deferred Student Loans: Conventional Eligibility
Unlike FHA loans, conventional loans do not have an exemption with deferred student loans. Even if the mortgage loan borrowers student loans have been deferred for more than 12 months, Conventional mortgage lenders will count the monthly minimum student loan payment towards calculating the borrower’s debt to income ratios. The minimum payment of the borrower’s student loan after the deferment period needs to be provided by the student loan provider and that payment will be used. If the student loan provider does not provide a monthly minimum payment after the deferment period, then the mortgage underwriter will use 2% of the balance of the student loan as their monthly minimum payment. For example, if the mortgage loan borrower has a $100,000 outstanding balance on a student loan and the student loan provider cannot provide a minimum monthly payment invoice, the mortgage loan underwriter will use 2% of the $100,000, or $2,000 as the monthly student loan payment in calculating the borrower’s debt to income ratios.
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