Alex Carlucci The Mortgage Expert,
Publish On: January 31, 2022
In this blog, we will discuss and cover mortgage with deferred student loans and high debt to income ratio. Qualifying for Mortgage With Deferred Student Loans is becoming a major problem with many home buyers. This is because deferred student loans are no longer exempt on government and conventional loans with the exemption of VA loans. Many home buyers with advanced degrees have student loan balances in the six figures. HUD Guidelines On Deferred Student Loans have changed.
Borrowers with Deferred Student Loans Longer than 12 Months
Guidelines On Mortgage With Deferred Student Loans
Lending Guidelines On Deferred Student Loans is not just a lender overlay. They are mandatory requirements with government and conventional loan programs. Every loan program from FHA, VA, USDA, Fannie Mae, and Freddie Mac set lending guidelines on qualifying for Mortgage With Deferred Student Loans. There are certain loopholes with getting Mortgage With Deferred Student Loans. There are other options besides taking 1.0% of the student loan balance and using it as a monthly debt. Unfortunately, many loan officers are not experienced with guidelines on Deferred Student Loans. Often they just take the 1.0% of the student loan balance and use that number as borrowers monthly debt. These loan officers do not explore other creative options that are available to borrowers with high student loan debts. The team at Gustan Cho Associates are experts in helping borrowers with high student loans qualify for a mortgage.
Conventional Guidelines On Mortgage With Deferred Student Loans
Fannie Mae and Freddie Mac Agency Guidelines On Deferred Student Loans require that all deferred student loan monthly payments need to be taken into account and counted as a monthly debt of borrowers.
- 0.50% of the outstanding balance is counted as monthly debt on zero debt
- Income-Based Repayment (IBR) can be used if the IBR payment is reporting on credit bureaus
- This holds true even with IBR payments that have a zero monthly payment due
Being able to use IBR Payments on Conventional Loans in DTI Calculations is a major benefit over government loan programs that do not allow IBR Payments:
- 0.50% of the student loan balance will be used as a monthly debt for DTI Calculations if there is no student loan monthly payment that reports on the borrower’s credit reports
- The amortized repayment amount cannot be established then the following is used
- The mortgage loan processor can do a credit supplement on the IBR payment if it is not reporting on the credit bureaus
Maximum debt to income ratio caps requirements with Fannie Mae is 50% DTI to get an approve/eligible per Automated Underwriting System Findings. The maximum debt-to-income-ratio requirements with Freddie Mac is also 50% DTI to get an approve/eligible per Automated Underwriting System Findings.
Alternative Monthly Student Loans Payments For DTI Calculations
Most borrowers and loan officers do not realize that there are alternative monthly student loan payments that can be used with qualifying for a mortgage with deferred with student loans instead of the 1.0% of the balance. IBR does no longer counts on FHA, VA, and USDA Loans. All deferred student loans need to be accountable for with regards to the monthly payment. Borrowers who work for the government and qualify for student loan forgiveness programs still need their student loan balances calculated for debt to income calculations.
0.50% Of Student Loan Balance Monthly Payment Versus Amortized Payment
Here is how borrowers can get a lower monthly student loan payment amount for DTI Calculations instead of the 1.0% of the balance:
- Contact Student Loan Provider
- State you are applying for a mortgage
- Need fully amortized monthly payment amount over an extended payment plan
- Normally that amount turns out to be under 0.50% of the student loan balance
- The extended term is normally 25 years
- Borrowers do not need to change their student loan plans
Borrowers just need a written hypothetical statement on what the monthly fully amortized payment will be on an extended payment plan.
VA Mortgage With Deferred Student Loans
The only mortgage loan program that exempts monthly amortized payments on student loans are VA Loans. VA exempts monthly student loan payments on student loansthat have been deferred for 12 or more months. Veteran borrowers with large outstanding student loan debt are in luck
Here is how The U.S. Department Of Veteran Affairs allows non-deferred student loans to be calculated:
- Take 5.0% of the outstanding student loan balance
- Divide that figure by 12 months
- That figure can be used as a hypothetical monthly student loan debt
Home Buyers having issues qualifying for a mortgage with deferred student loans, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. Gustan Cho Associates has a national reputation for being a one-stop mortgage shop because besides having no lender overlays on government and conventional loans, we are able to offer dozens of non-QM mortgage loan programs. Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to their lender overlays. We say YES at Gustan Cho Associates when other lenders say NO.
