- Government, Conventional, non-QM, bank statements, jumbo mortgages, and alternative financing loans all have their own Mortgage With High Student Loan Debts lending requirements
- Student Loan debt is one of the biggest hurdles facing many home buyers qualify for home loans
- Many professionals with graduate and/or professional degrees such as doctors, dentists, lawyers, and educators have student loan balances well into the six figures
Gustan Cho Associates Mortgage Group are experts in finding creative ways of qualifying borrowers for Mortgage With High Student Loan Debts.
How Mortgage With High Student Loan Debts Affect Borrowers
All student loan balances will affect borrowers.
Even borrowers with deferred student loans, IBR payments, and those with future student loan balance forgiveness.
- High student loan balances will also hurt credit scores due to liability and can affect findings on Automated Underwriting System
- This is because many consumers have higher balances than originally borrowed due to accruing interest
- The two biggest hurdles affecting borrowers from qualifying for a mortgage is high student loan balances and auto loans
- Average auto loans are $30,000 with a monthly payment of $400
- $400 per month is equivalent to an $80,000 loan balance
- Borrowers with higher education degrees such as masters, medical, dental, business, and law degrees normally have student loan balances over six figures
There are instances where many borrowers with higher student loan balances need to go with conventional loans. This is since IBR payments are allowed with conforming loans but not government loans.
Qualifying For Mortgage With High Student Loan Debts
All student loan debts need to be included when underwriters are calculating debt to income ratios. Every loan program has its own guidelines when it comes to how to calculate student loans. There is debt to income ratio caps on government and conventional loans.
Here are the maximum debt to income ratio caps on government and conforming loans;
- FHA requires maximum 46.9% front end and 56.9% back end DTI to get an approve/eligible per Automated Underwriting System
- USDA caps debt to income ratios at 29% front end and 41% back end
- VA does not have a maximum debt to income ratio requirements as long as borrowers have strong ample residual income
- Conventional Loans maximum debt to income ratio caps is at 50% debt to income ratio
- There is no front end debt to income ratio requirements on conforming loans
Homebuyers with zero student loan payments due to deferment can be affected in qualifying for home loans depending on the mortgage program. A mortgage with high student loan debts does not affect front end debt to income ratios. It does affect back end debt to income ratios.
All Student Loans Needs To Be In Good Standing
All federal debts, including student loans, need to be in good standing.
- Those who are in default on federal student loans cannot get approved for government and/or conventional loans
- Homebuyers in default on their federal student loans cannot qualify for a mortgage until they have rectified the default
- Contact the student loan provider and take steps in getting it out of default status
- Set up a payment plan
- Need to make at least three to six monthly payments on time
- We will be covering on ways of qualifying for a mortgage with high student loan debts on this blog
- Adding non-occupant co-borrowers is always an option with FHA and Conventional Loans
- Both HUD, Fannie Mae, Freddie Mac allows multiple non-occupant co-borrowers
- Only married spouses are allowed to be co-borrowers with VA Home Loans
USDA does not allow non-occupant co-borrowers.
FHA And USDA Loans With High Student Loan Debts
Both FHA and USDA have the same student loan lending guidelines. Deferred student loans that are deferred for longer than 12 months are no longer exempt from DTI calculations by mortgage underwriters. 1.0% of outstanding student loan balance needs to be used as a hypothetical monthly debt and used by underwriters.
A second option, where not all lenders will accept, is contacting the student loan provider and request the following:
- Need to use the following verbiage:
- I am applying for a mortgage
- My lender needs a fully monthly amortized payment over an extended term
- The term is normally 25 years
- This figure turns out to be around 0.50% of the student loan balance
The fully amortized monthly payment needs to be in writing. Again, not all lenders will accept the second option. Gustan Cho Associates Mortgage Group is a direct lender with no overlays on government and conventional loans and will accept the second option.
VA Loans With High Student Loan Debts
The United States Department of Veterans Affairs (VA) will exempt deferred student loans that have been deferred for longer than 12 months. Non-deferred student loans,
VA will allow the following:
- Take 5% of the outstanding student loan balance and divide it by 12 months
- This figure will be used as a monthly hypothetical debt of borrowers by mortgage underwriters
VA does not have a minimum credit score requirement nor does it have a maximum debt to income ratio caps.
Conventional Loans With High Student Loan Debts
Conventional Loans are the mortgage of choice for borrowers with higher student loan balances.
- Income-Based Repayment (IBR) is accepted with conforming loans as long as it is reported on the credit report
- There are many instances where borrowers with student loan balances of higher than $100,000 where their IBR payment is $100 or less per month
Borrowers who need to qualify for a mortgage with high student loan debts can contact us at Gustan Cho Associates Mortgage Group at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are national direct lenders with no overlays on government and conventional loans. We are available 7 days a week, evenings, weekends, and holidays.
July 17, 2020 - 4 min read