How Student Loans Affect Qualifying For Mortgage

This Blog On How Student Loans Affect Qualifying For Mortgage Was Written By Gustan Cho NMLS 873293

Two types of debts are the biggest hurdles most home buyers will encounter when qualifying for a mortgage loan. They are student loan debts and automobile monthly payments. Student loan debts can be tens of thousands of dollars and a car payment can be a minimum of $400 per month. Some folks have student loan debts of over $100,000 while many home buyers who have advanced degrees can have student debts of more than $200,000. Car payments are amortized over a short period of time such as five year so car loan payments can be substantial when it comes to debt to income ratio calculations. A $400 monthly car payment is equivalent to a $80,000 mortgage loan. If you are intending in applying for a mortgage, try to avoid in getting a car loan. A car loan will affect debt to income ratios when qualifying for a mortgage. There has been changes with student loans and deferred student loans that many home buyers question how student loans affect qualifying for mortgage.

How Student Loans Affect Qualifying For Mortgage: FHA Loans

Lately, I have been getting more and more inquiries from home buyers who could not qualify for a mortgage from other lenders due to their high student loan debt. Not too long ago, FHA exempted student loans that were deferred for at least 12 months from the closing date from debt to income ratio calculations of borrowers. Unfortunately, this is no longer the case and all student loans on FHA Loans and Conventional Loans needs to be counted in the borrower’s debt to income ratio calculations even though the student loans have been deferred. The reason HUD, the parent of the Federal Housing Administration or FHA, has changed this policy is to make sure that a borrower with high student loan balances are able to pay their mortgage payments timely after their deferred student loans become due after their deferment period is over. After the changes of no longer exempting deferred student loans, borrowers who got hurt the most were those with higher student loan debts such as doctors, dentists, nurses, attorneys, professors, and borrowers who went to expensive private colleges and universities where their student loan balances exceeded more than $200,000. This new rule with FHA borrowers not being able to exempt their deferred student loan debt, it will disqualify many home buyers with large student loan debts. However, on the positive side, it will force home buyers who have large student loan debts from taking on more debt than they can handle once their student loans become due and is out of deferment.

Here are some bullet points on How Student Loans Affect Qualifying For Mortgage With FHA Loans:

  • Deferred student loans are no longer exempt from debt to income calculations.
  • Zero payment Income Base Repayment plans are no longer valid with FHA Loans.
  • You need a fully amortized repayment monthly student loan plan with an extended term and that amount needs to be in writing by the student loan provider.
  • Your loan officer can be on the phone with your student loan provider via conference call and your loan officer can talk to the student loan customer service representative that you are applying for a mortgage and that you need a set dollar amount that will be your monthly student loan payment but that payment needs to be fully amortized over an extended term, whether it is 25 years, 30 years, or 40 years.
  • The longer the extended term, the lower your student loan payments will be. Your loan officer can use the verbal figure to start processing your FHA Loan, however, a written agreement or coupon needs to be provided by the student loan provider.
  • Graduated payment plans are not allowed and many borrowers have difficulty with getting what is required. Your loan officer should be on the phone with you with your student loan provider and your loan officer can get the exact information needed to proceed with your FHA Mortgage Loan Process .

How Student Loans Affect Qualifying For Mortgage: Conventional Loans

Both Fannie Mae and Freddie Mac never had an exemption rule when it came to deferred student loans.

  • No matter how long a student loan is deferred, Fannie Mae and Freddie Mac required a fully amortized monthly minimum student loan payment amount in writing by the student loan provider.
  • In the event if the student loan provider could not provide a written minimum monthly student payment amount, then 1.0% of the outstanding student loan balance was used in lieu of the monthly student loan payment provided by the student loan provider.
  • For example, if the home buyer who is qualifying for a Conventional Loan has a $200,000 student loan balance in deferment and if that borrower cannot get a written extended amortized monthly payment, then 1.0% of the $200,000 or $2,000 will be used as the borrower’s monthly debt when calculating the borrower’s debt to income ratio.
  • The student loan monthly payment cannot be an Income Base Repayment and cannot be negative amortization.
  • It needs to be a fully amortized monthly student loan payment and it can be on the maximum extended payment plan.
  • This monthly amortized monthly student loan payment plan needs to be in writing by the student loan provider.

VA Loans And How Student Loans Affect Qualifying For Mortgage

VA Loans is by far the best owner occupant mortgage loan program where a borrower with a VA Certificate Of Eligibility can qualify for a home loan with no money down and no mortgage insurance required. VA Loans also allow for up to a 4% in sellers concessions where a home buyer who can qualify for a VA Loan will not need a single penny out of pocket and purchase a home with no closing costs and no down payment.  Unfortunately, not everyone can qualify for a VA Loan. You need to have served in the United States Armed Services and have been granted an honorable discharge and have been issued a VA Certificate Of Eligibility, or COE, from the Department of Veterans Affairs. One of the greatest benefits with serving our country is being eligible for a VA Loan.

Here are some bullet points on VA Loans:

  • Mandatory waiting period after a foreclosure, deed in lieu of foreclosure is 2 years from the recorded date of foreclosure and/or date of the sheriff’s sale.
  • FHA requires a three year waiting period after a foreclosure and deed in lieu of foreclosure.
  • Fannie Mae and Freddie Mac require a four year waiting period to qualify for a Conventional Loan after a deed in lieu of foreclosure and the waiting period is seven years to qualify for a Conventional Loan after the recorded date of a foreclosure.
  • There is a two year waiting period to qualify for a VA Loan after a bankruptcy.
  • FHA requires a two year waiting period and Fannie Mae and Freddie Mac requires a four year waiting period after a Chapter 7 Bankruptcy discharged date to qualify for a Conventional Loan.
  • There is a two year waiting period to qualify for a VA Loan to qualify after a short sale date.
  • The waiting period clock starts from the date of the short sale that is reflected on the HUD Settlement Statement.
  • FHA requires a three year waiting period to qualify for a FHA Loan after the short sale date.
  • There is a four year waiting period to qualify for a Conventional Loan after the date of the short sale.
  • VA Loans due exempt deferred student loan payments unlike FHA Loans and Conventional Loans.
  • Student loans that has been deferred at least 12 months are exempt from debt to income ratio calculations.
  • Many mortgage lenders may have lender overlays when it comes to exemption on deferred student loans on VA Loans.

How Student Loans Affect Qualifying For Mortgage With USDA Loans

The United States Department of Agriculture is the governmental agency that is in charge of USDA Loans. USDA Loans is not for everyone. The location of the property needs to be classified as an eligible USDA approved area and the borrower needs to also qualify for the USDA Loan. The U.S. Department of Agriculture does not exempt deferred student loans. Borrowers with deferred student loans needs to get a fully amortized extended term monthly payment statement from their student loan provider or 1.0% of the borrower’s outstanding student loan balance will be used when calculating the borrower’s debt to income ratios.

Borrowers With High Debt To Income Ratios Due To Student Loans

The Gustan Cho Team at CrossCountry Mortgage NMLS 3029 specializes in helping borrowers with higher debt to income ratios due to student loans. Gustan Cho and his team of loan officers at CrossCountry Mortgage NMLS 3029 will find creative ways of getting you into a loan program even if you have high student loan balances. There are many loan programs such as Non-QM Mortgages that CrossCountry Mortgage NMLS 3029 offers its borrowers where deferred student loans are exempt from debt to income ratio calculations of the borrower. CrossCountry Mortgage NMLS 3029 is a Fannie Mae/Freddie Mac/Ginnie Mae direct lender and correspondent lender headquartered in Breckville, Ohio and licensed in 50 states. The Gustan Cho Team at CrossCountry Mortgage NMLS 3029 is available 7 days a week, evenings, weekends, and holidays to take your phone calls and mortgage inquiry. For faster response, text Gustan Cho at 262-716-8151 or you can email Gustan Cho at gcho@gustancho.com.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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