How Do Mortgage Underwriters View Deferred Student Loans?
Deferred student loans are viewed differently from FHA mortgage underwriters and Conventional mortgage underwriters. FHA and Fannie Mae have different mortgage lending guidelines when it comes to student loans in general, especially deferred student loans.
First of all, student loans are government loans and you cannot have a student loan in collections or default status. You can have unpaid collection accounts for any creditor but you cannot have any unpaid collection accounts or student loan accounts that are not current if you are planning on applying for residential mortgage loan. You can have the best credit scores in the world and perfect credit and income but if you have a single student loan accounts in default, bad standings, or in arrears, you can bet that your mortgage application process will come to an abrupt halt.
FHA Guidelines On Deferred Student Loans
As mentioned earlier, FHA and Fannie Mae has different guidelines when it comes to deferred student loans. FHA allows a mortgage borrower to exempt student loan monthly payments from the calculation of debt to income ratios only if the student loan has been deferred for at least 12 months. It cannot be less than 12 months. The student loan has to be deferred for 12 or more months in order for the monthly student loan payment not to count in the borrower’s debt to income ratio calculations. If the mortgage borrower has student loans that are deferred less than 12 months, the student loan borrower needs to contact the student loan provider and see if they can extend their student loan deferment for at least 12 months. Student loan providers understand that deferred student loans that are 12 months deferred are exempt from debt to income calculations and most times we do not have a problem in getting a student loan provider to extend the borrower’s student loans.
Conventional Loan Guidelines On Deferred Student Loans
Conventional loan programs stance on deferred student loans are totally different than those of FHA guidelines on deferred student loans. With conventional loans, deferred student loans are not exempt under any circumstances. Even though your student loans may be deferred for over 12 months and you are still in school, conventional loan mortgage underwriters need to count your student loan payments in calculating your debt to income ratios even though you are not paying anything currently because your student loans are deferred.
For those who do not know what their monthly student loan payments will be after the student loan deferment period, they need to contact their student loan provider and get that amount in a written form. There are times where the student loan provider cannot or will take their time issuing what the future deferred student loan payment will be. If the mortgage underwriter cannot determine what the future deferred student loan payment will be, then the way the mortgage loan underwriter will calculate your monthly student loan payment in calculating your debt to income ratios will be by taking 2% of your total student loan balance and use that as your monthly student loan payment. The 2% figure can be extremely high for those who have student loan balances that are high. If you have a student loan balance of $100,000, 2% of the student loan balance of $100,000 is $2,000 per month which is a large monthly payment that will be figured into your debt to income ratio calculations.
Advantage Of FHA Loans With Deferred Student Loans
For home buyers with high balances on their student loans and who are currently going to graduate school or professional school while working full time and have deferred student loans for 12 months or longer, FHA loans is the way to go due to the exemption on student loan payments in debt to income ratio calculations on deferred student loan.
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