Deferred Student Loans In Mortgage Qualification And Guidelines

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This BLOG On Deferred Student Loans In Mortgage Qualification And Guidelines Was UPDATED On May 7th, 2019

What are Deferred Student Loans In Mortgage Qualification And Guidelines

Deferred Student Loans In Mortgage Qualification are viewed differently by mortgage underwriters.

  • FHA, VA,  and Fannie Mae have different mortgage guidelines when it comes to student loans in general, especially deferred student loans

First of all, with government student loans, consumers cannot have it in bad standings, collections or default status.

  • Consumers can have unpaid collection accounts for any creditor
  • However, cannot have any unpaid collection accounts on federal student loan accounts
  • Home Buyers cannot qualify for government and/or conventional loans with defaulted federal debt obligations
  • Borrowers can have the best credit and credit scores with great income, but  any federal debt in arrears in not in good standings will halt any home loan process
  • A single student loan accounts in default, bad standings, or in arrears, the mortgage application process will come to an abrupt halt

FHA Guidelines On Deferred Student Loans In Mortgage Qualification

What are FHA Guidelines On Deferred Student Loans In Mortgage Qualification

As mentioned earlier, FHA, VA, and Fannie Mae have different guidelines when it comes to deferred student loans. FHA and USDA have the exact same Deferred Student Loans In Mortgage Qualification so we will not mention USDA.

  • FHA no longer allows borrowers 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
  • The student loan has to be deferred for 12 or more months, it is no longer exempt under HUD 4000.1 FHA Handbook
  • There are two options on Deferred Student Loans In Mortgage Qualification on FHA Loans
    • Take 1.0% of the outstanding student loan balance and use that figure as a hypothetical monthly debt when underwriters are calculating DTI
    • The second option is to contact the student loan provider and use the following verbiage:
      • I am applying for a mortgage
      • My lender needs a fully hypothetical amortized monthly payment over an extended term
      • The extended term is normally 25 year
      • Need this hypothetical monthly amortized payment in writing

Conventional Loan Guidelines On Deferred Student Loans

What are Conventional Loan Guidelines On Deferred Student Loans

Conventional loan programs stance on  Deferred Student Loans In Mortgage Qualification are totally different than those of FHA guidelines on deferred student loans.

  • With conventional loans, deferred student loans are not exempt just like FHA Guidelines
  • Even though student loans may be deferred for over 12 months and are still in school, mortgage underwriters need to count student loan payments in calculating debt to income ratios
  • This is the case even though students are not paying anything currently because student loans are deferred
  • If the mortgage underwriter cannot determine what the future student loan payment will be, they take monthly student loan payment in calculating debt to income ratios will be by taking 1% of the total student loan balance
  • That figure is used as a monthly student loan payment
  • The 1% figure can be extremely high for those who have a high student loan balance
  • The student loan balance of $100,000, 1% of the student loan balance of $100,000 is $1,000 per month which is a large monthly payment that will be figured into debt to income ratio calculations

IBR Payments Fannie Mae Guidelines On Deferred Student Loans In Mortgage Qualification

What are IBR Payments Fannie Mae Guidelines On Deferred Student Loans In Mortgage Qualification

A great benefit with conventional loans is if a borrower is on an Income Based Repayment (IBR), lenders will take the IBR Payment in lieu of the 1.0% of the student loan balance.

  • That IBR payment can be used as the monthly student loan payment when calculating for debt to income ratios
  • However, the IBR Payment needs to report to all three credit bureaus
  • If the IBR Payment is not reporting on all three credit bureaus, the mortgage lender can help and do a credit supplement/rapid rescore and make sure it is reflecting on a borrowers credit report
  • For example, if a borrower has a $100,000 student loan balance and the IBR Payment is $80.00 per month and reflecting on the credit bureaus, the $80 monthly payment can be used instead of the hypothetical 1.0% of the $100,000
  • There are many instances where borrowers may not qualify for FHA Loans due to high balance student loans but qualify for conventional loans

VA Loans With Deferred Student Loans

What is VA Loans With Deferred Student Loans

VA Loans has the most lenient mortgage guidelines when it comes to deferred student loans.

  • For home buyers with high balances on their student loans with deferred student loans for 12 or more months VA loans exempt those payments
  • VA is the way to go due to the exemption on student loan payments in debt to income ratio calculations on deferred student loan
  • If the deferred student loans are not deferred for longer than 12 months, VA Guidelines On Deferred Student Loans In Mortgage Qualification are as follows:
    • Take 5% of the outstanding student loan balance
    • Divide the above sum by 12 months
    • That figure will be used as a hypothetical monthly debt payment

VA Loan Programs are the best home loan program in the United States. However, only veteran home buyers with an eligible Certificate Of Eligibility qualify for VA Loans. Any questions on Deferred Student Loans or qualifying for a mortgage with higher debt to income ratios, please contact Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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