Reducing Monthly Student Loan Debt Mortgage Guidelines

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Reducing Monthly Student Loan Debt Mortgage Guidelines

This Article Of Reducing Monthly Student Loan Debt Was UDATED On October 15th, 2018

If you are looking to buy a home but are concerned debt to income ratio will be too high because of student loan payments, this article discusses options to reduce monthly student loan payments.

  • Reducing monthly student loan payment can significantly reduce monthly debt to income ratio
  • Consumers applying for student loan repayment using one of these options can reduce their debt to income ratio in less than 30 days in most cases
  • Many people do not even know these programs exist
  • Lets say for example:
    • are repaying your student loans using the standard repayment plan
    • which is 10 years
    • and monthly student loan payment is $700
    • this could make or break an approval to purchase a new home
  • Imagine getting that payment cut in half or even more, possibly down to zero

Cost Of An Education

The cost of an education has increased dramatically over the last two decades. Many graduates are looking for ways of reducing monthly student loan debt.

  • The U.S Department of Education reports that the average annual tuition is currently $16,482 for a four year public school and $34,193 for a private school
  • This is up from $8,653 for a four year public school and $21,373 for a private school in 2000
  • Currently, there is approximately $1.3 trillion in outstanding student loan debt in the United States
  • With the increasing cost of tuition, many young students are forced to take out student loans to help with the rising costs of tuition

Repayment Alternatives

Once student graduates from school, they generally have six months before forbearance ends. Graduates are required to begin making payments. There are many payment alternatives when it comes to paying back student loans.

  • 10 year standard repayment plan:
    • This is ideal because you pay the loan off sooner with the least amount of interest, although monthly payments are higher
  • Graduated Repayment Plan:
    • Payments start low, while graduates are new in their career and income is expected to increase as they gain more experience in their field
    • While the payments start low, they get excessively high towards the end
  • Extended Repayment Plan:
    • Allows you to pay for a period of up to 25 years, although these are only for loans that are at least $30,000

Income Based Repayment Plans

Income based repayment plans offer individuals an option to pay off their student loan debt based on their adjusted gross income and is a great option for reducing monthly student loan debt.

  • Under these plans, the individual must re-certify each year by providing a copy of their annual federal income tax return
  • The monthly payment can be as low as $0 every month
  • Debt can be forgiven after 25 years, although this may be a taxable event (forgiven debt can be counted as income)

Reducing Monthly Student Loan Debt On Government And Conventional Loans 

Under HUD Guidelines, all government and conventional loan programs with the exception of VA Loans does not exempt deferred student loans that has been deferred 12 or more months.

  • Income Based Repayment Plans (IBR) that reports to all three credit bureaus are allowed on Conventional Loans
  • FHA and USDA requires 1.0% of outstanding student balance to be used as a hypothetical monthly debt
  • VA allows deferred student loans that are deferred for longer than 12 months to be exempt from DTI Calculations
  • VA requires underwriters take 5% of outstanding student loan balance and dividing it by 12 months

Public Student Loan Debt Forgiveness

An individual that works for a government organization, not-for-profit, or serving in AmeriCorps or Peace Corps, may qualify after 120 payments and 10 years of work history in public service.

  • The individual must be making payments through an income-based repayment plan to benefit
  • Under an income-based repayment plan, a student can virtually pay nothing towards their student loans;
    • after the 120 months, the debt will be forgiven and in this situation would NOT be a taxable event

Choosing The Best Scenario

When applying for student loan repayment programs, one needs to consider their personal financial situation.

  • Currently, a married borrower can file married filing separately
  • They exclude the spouse’s income from the household income calculation
  • This may benefit those borrowers who earn less income than their spouses and their spouses do not have student loan debt
  • You would need to be sure that a married filing separate filing status would financially benefit you as you would lose credit for child tax credits, child care costs, education credits, and possibly other deductions

About The Author Of Reducing Monthly Student Loan Debt

This article on Reducing Monthly Student Loan Debt was written by Michael Gracz of The Gustan Cho Team at Loan Cabin

  • Michael Gracz is the National Sales Manager for Gustan Cho Associates
  • Michael is also an associate moderator for Mortgage Portal
  • Mike is a producing loan officer with The Gustan Cho Team at Loan Cabin
  • Armed with a Master of Business Administration degree and a Master’s degree in accountancy, Mike is an expert in all areas of accounting and audits
  • Mike is an expert on FHA Loans, VA Loans, USDA Loans, and Conventional Loans
  • Mike is known nationally and due to being associate editor in chief for California Loan is well known in the Sacramento Real Estate community as the go to lender for tougher and creative deals
  • Gustan Cho Associates at Loan Cabin Inc. is a national full eagle mortgage banking company that is licensed in multiple states
  • With a national known reputation for no lender overlays and working with borrowers to make the deal happen Michael has a national five star reputation
  • A mortgage loan denial does not exist in Mike Gracz’s vocabulary.
  • All of our pre-approvals at Gustan Cho Associates but will not get closed but closes on time

Starting Pre-Approval Process With Direct Lender With No Overlays

Michael Gracz of Gustan Cho Associates fully understands that the pre-approval stage is the most important phase of the mortgage process. The main reason for last minute mortgage denials is due to the loan officer not being diligent when issuing a pre-approval to the borrower.

  • Due to Mike’s expertise in accounting and financial audits, Mike is The Gustan Cho Team at Loan Cabin chief income calculations expert for our licensed mortgage loan officers
  • Calculating income is extremely complex for self employed borrowers who have multiple corporate tax returns
  • Mike is a team player and a natural born leader where our whole team and staff look up to him for his expertise and guidance and leadership

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