Student Loan Debt Mortgage Guidelines On Loan Programs
This BLOG On Student Loan Debt Mortgage Guidelines On Loan Programs Was PUBLISHED On October 27th, 2019
HOW FANNIE, FREDDIE AND FHA HANDLE STUDENT LOAN DEBT.
Student Loan Debt Mortgage Guidelines is different on every loan program. Government and Conventional Loans has their own Student Loan Debt Mortgage Guidelines.
First lets go over Fannie and Freddie.
- If your credit report has a payment on the credit report Fannie and Freddie Conventional loans will use that payment
- If there is a $0 or Unknown amount reporting on credit report, mortgage underwriters will then hit borrowers for 1% percent of the balance for a monthly payment on conventional loans
- Example on a case scenario:
- if you have $10,000 outstanding of student loan balance
- then mortgage underwriters will add $100 or 1% as borrowers hypothetical debt when calculating debt to income ratio on conventional loans
- But if you make a phone call into your Federal student loan company and ask for a Income Based Repayment Plan or IBR plan they will give a low payment that Conventional underwriters will use
- For example, if you have $10,000 and you call in and say I need an IBR plan, student loan provider may give an IBR payment of $10 a month
- This is a lot better than $100
- This works for deferred payments too
- If you take your deferred payment plan and turn it into a IBR then you will have to start paying right away on your plan
- But what most people don’t know and this is why you should call Gustan Cho Associates
- Consumers can always call back and put your loan back into deferment
- The student loan companies are very nice on the phone and they want to help you in every way possible
HUD Student Loan Debt Mortgage Guidelines
HUD student loan debt mortgage guidelines is similar but different than Conventional student loan debt. USDA has the exact student loan debt mortgage guidelines as FHA.
- It is the same if you have $0 dollars reporting on credit report or outstanding student loans are in deferment, Underwriter will hit you for 1% payment:
- 1.0% of the outstanding student loan balance is a hypothetical debt used by mortgage underwriters to calculate borrowers DTI
- But if you call the student loan company and request not an IBR but an Extended Payment Plan
- Needs to be fully amortized over an extended term which is normally 25 years
- This can reduce monthly obligation that the underwriter will use
VA Guidelines On Student Loans
VA Loans allows deferred student loans that has been deferred longer than 12 months.
This is how mortgage underwriters need to calculate hypothetical student loan debt on VA Home Loans:
- Student Loans deferred longer than 12 months are exempt from DTI
- If non-deferred, underwriters must do the following:
- Take 5% of outstanding student loan balance
- Take that and divide it by 12
- Resulting figure will be monthly hypothetical monthly student loan debt used for DTI
How Does Fully Amortized Monthly Payments Over Extended Term Work
How this works is most student loans are amortized over 10 years:
- If you ask for an Extended plan they will amortize your payment over 25 years
- So you call them up ask for 25 year payment plan and they will give you a payment
- If that payment covers you total debt when multiplied by years then underwriter will use this payment
- You may need to go back and forth with student loan company to get this right
- Example is if you have $50,000 in student loan debt, the underwriter will use $500 a month if you do nothing
- If you call and ask for 25 year Extended payment plan and they give you $100 per month for 25 years this will not work
- This is because $100 times 300 months (25 years) equals $30,000
- This is short of the $50,000 you owe
- So you need to renegotiate with them and get your payment up to a minimum of $166 a month
- This will cover your $50,000
- Underwriter will use $166 vs the $500 if you do nothing
- Again the student loan companies are very helpful
- You can call back later in the year and go back to deferred
In summary you need to contact us at Gustan Cho Associates. We will increase your purchasing power by helping you renegotiate your student loan debt by either IBR for conventional or Extended Payment Plan for FHA.