Student Loans: Effects In Qualifying For Mortgage
Tuition for colleges, universities, technical schools, and specialty schools have sky rocketted and it is almost impossible for anyone to get a higher education and degree without the access of student loans. Tuition and fees at most private universities average $50,000 per year and $30,000 for state universities. With the high unemployment rate and underemployment rate, many recent graduates struggle finding work in their fields and a large percentage of them find jobs that is totally not related to their field of studies. Most of those who have student loans have balances north of $50,000 and it will take them mega years to pay their student loans. Unfortunately, student loan payments are treated the same as any monthly credit payment for anyone who is applying for a residential mortgage loan and will be used as part of their debt to income calculation.
Student Loan Payments: Reported On Credit Reports
For those who carry student loans, their student loan payments are reported to all three credit reporting agencies. One great advantage of student loans is that student loan monthly payments can be deferred for a period of time. Any student loan that is deferred for at least a year or more can be excluded in mortgage qualification purposes.
Student Loans: Case Study
Most people take out a student loan so they can better themselves by getting a degree from a college, university, or technical school. Statistics prove that the more education you have, the higher paying job you can land. Here is a case scenario:
A. A person gets student loans in order to attend college with plans of graduating with a degree and takes out a total student loan amount of $50,000.
B. Graduates with a degree and lands an above average paying job. He wants to purchase a home.
C. Contacts a mortgage lender to get pre-approved and his student loan information surfaces on his credit report but the student loan payment is in arrears and in collection.
D. Home buyer offers to get student loan current so he can qualify for a home. No can do.
A person who has a student loan in collections or are in arrears in his or her payments, cannot qualify for a government mortgage loan until the student loan is in good standings. The student loan needs to be out of collections and assigned to a student loan provider and be in current standings. Student loans cannot be included in bankruptcy filings and are not dischargeable. All student loans are government loans and need to be paid.
As mentioned earlier, in the event the student loan has been in deferment for 12 or more months, the Federal Housing Administration allows the student loan monthly payment to be excluded in income qualification. This is a huge benefit for those with higher debt to income ratios.