This BLOG On Student Loans Mortgage Guidelines On Government & Conforming Loans Was PUBLISHED On October 11th, 2019
Higher Balance Student Loans is one of the biggest hurdles when it comes to qualifying for mortgage.
- Many home buyers with graduate and/or professional degrees have student loan balances into the six figures
- Student Loans Mortgage Guidelines On Government & Conforming Loans depends on the particular loan program
- Recent changes on Student Loans Mortgage Guidelines On Conventional Loans allows Income Based Repayment Plans also referred to as IBR
- Borrowers with a substantial student loan balance and on an IBR can now qualify for conventional loans where they may not qualify for FHA Home Loans
For example, a borrower who has a $200,000 student loan balance with an Income Based Repayment (IBR) of $80 per month can use the $80 per month as their monthly student loan debt instead of the 1.0% of the outstanding balance. The IBR payment needs to report on credit report.
FHA Student Mortgage Guidelines
FHA Loans is the nations most popular mortgage loan program.
- Borrowers can get an approve/eligible per Automated Underwriting System approval with a max 46.9% front end and 56.9% back end DTI
- Conventional Loans max debt to income ratio cap is 50%
- USDA caps it at 29% front end and 41% back end
- The U.S. Department of Veterans Affairs (VA) does not have a maximum debt to income ratio cap
- FHA no longer exempts deferred student loans that has been deferred for longer than 12 months
How Mortgage Underwriters Calculate Student Loans
Here is how mortgage underwriters need to calculate student loans on FHA Loans:
- Mortgage Underwriters needs to include all student loan balances in borrowers liability section
- This is regardless of the type of payments
- Whether or not the student loans are deferred or on an Income Based Repayment Plan (IBR)
- In the event and case where the student loan monthly debt payment is less than 1.0% of the outstanding balance reporting on credit bureaus the lender needs to receive the following documentation:
- Written statement showing the monthly student loan payment is fully amortized over an extended term
- The actual monthly student loan payment, the status of the student loan payment, and the outstanding balance and term from the student loan provider
The lender needs to use either of the following:
- 1.0% of the outstanding student loan balance as the borrowers monthly student loan debt
- The documented monthly payment that is fully amortized on an extended term which is normally 25 years
Borrowers can contact the student loan provider and use the following verbiage:
- I am applying for a home loan
- My lender needs a fully monthly amortized payment over an extended term which is normally 25 years
- This amount turns out to be around 0.50% versus the 1.0%
- Need this in writing
Mortgage Guidelines On USDA Loans
USDA Loans has the same student loans mortgage guidelines as FHA Loans.
- Any fixed payment student loans can be used as monthly debt in DTI calculations
- Lender needs verification and documentation that the loan is permanently amortized with fixed payment, including interest rates being fixed and the repayment plan being fixed
Income Based Repayment Plans, Graduated Adjustable, and other non-fixed repayment plans including deferred student loans cannot be used in debt to income ratio calculations.
Lenders must include the payment as follows:
- A permanent amortized, fixed payment may be used in the debt ratio when the lender retains documentation to verify the payment is fixed, the interest rate is fixed, and the repayment term is fixed
- Like FHA Loans, 1.0% of the outstanding loan balance needs to be used as a hypothetical monthly student loan payment
Mortgage Guidelines On VA Home Loans
Per VA Student Loans Mortgage Guidelines, deferred student loans that has been deferred for at least 12 months are exempt from debt to income ratio calculations. Mortgage underwriters can use monthly payments on borrowers credit report as long as they are fully amortized.
If the payments are not fully amortized over extended term, then here is the way on how to calculate monthly student loan payments on VA Mortgages:
- Taking 5.0% of outstanding balance of student loan
- Then dividing it by 12 months
- The resulting figure is the monthly student debt used in borrowers debt to income ratio calculations for VA Loans
- Or the monthly payment that is reporting on borrowers credit report
Qualifying For Home Loan With High Student Loan Balances
The best loan program for borrowers with very high balance student loans are conforming loans. Reason being is because conventional loans are the only loan program that allows Income Based Repayments (IBR). Many borrowers with student loan balances over $100,000 have IBR payments of less than $100 per month. The $100 per month can be used in lieu of the 1.0% of the outstanding student loan balance. Home Buyers who need to qualify for mortgage with high student loan balances with a direct lender with no overlays can contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response. We are available 7 days a week, evenings, weekends, and holidays.