In this article, we will cover and discuss VA guidelines on deferred student loans and how it affects the debt to income ratio on VA loans. VA loans are the only loan program that exempts deferred student loans that are deferred for longer than 12 months. VA loans have no minimum credit score requirements and no maximum debt to income ratio caps as long as the borrower gets an approve/eligible per automated underwriting system. VA loans also allow manual underwriting on files rending refer/eligible per AUS.
What Are VA Guidelines On Deferred Student Loans
One of the best benefits available to Veterans of the United States Armed Services is the opportunity to become eligible to qualify for VA Loans. Only eligible active and/or retired members of the United States Military with a valid certificate of eligibility (COE) can qualify for VA loans
Mortgage Lender Licensed In Multiple States With Zero Overlays On VA Loans
Gustan Cho Associates empowered by NEXA Mortgage, LLC NMLS 1660680 is a national mortgage company licensed in 48 states with no lender overlays on government and conventional loans. The team at Gustan Cho Associates are experts in helping homebuyers and homeowners qualify for VA loans with no worries about dealing with any lender overlays. We have no lender overlays on VA loans.
The Role of Veterans Affairs on VA Loans
The U.S. Department of Veteran Affairs (VA) is the government agency that creates and implements VA Agency Mortgage Guidelines. VA loans have lenient guidelines than any other home mortgage loan program. The Department of Veteran Affairs realizes that veterans may have less than perfect credit due to their careers in the U.S. Military while on active duty. This holds especially true for soldiers who have been deployed and/or been transferred to other military bases often throughout their careers.
VA Versus Other Loan Programs
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VA loan programs are only for select borrowers who served in the U.S. Military and have a Certificate Of Eligibility. VA Loans is hands down the best mortgage loan program available today. There is no down payment requirement. Mortgage interest rates on VA loans are one of the lowest mortgage rates than any other mortgage loan program. The U.S. Department Of Veteran Affairs (VA) does not originate, fund, or service VA Loans. The U.S. Veterans Administration (VA) insures approved mortgage lenders in the event if the borrower defaults and/or forecloses on their VA loans.
How the Veterans Administration Insure Mortgage Lenders on VA Loans
The VA will partially guarantee the lender in the event if they lose money due to the borrower default and/or foreclosure. VA Lenders are banks and private mortgage lenders. VA insures lenders in the event borrowers default on their VA loans and the mortgage goes into foreclosure. Unfortunately, VA Loans are only for Veterans of the U.S. Armed Forces who have a Certificate of Eligibility.
VA Eligibility for Multiple VA Loans
Many borrowers who had a foreclosure with a prior VA Loan may still qualify for another VA. There are many times where a borrower may not qualify for a VA Loan due to not getting an automated underwriting system approval but may qualify for FHA Loan. They may go with FHA Loan first and refinance to a VA Loan at a later date.
Student Loans And Debt To Income Ratios
VA Guidelines On Deferred Student Loans are the most lenient of all mortgage programs. Student loan debt is calculated by mortgage lenders in the calculations of the borrower’s debt to income ratios. What are deferred student loans?
Deferred Student Loans on VA Loans
Deferred Student Loans are student loan payments that have been deferred by the student loan provider. Deferred does not mean forgiving. No minimum monthly payments need to be made for a certain period of time. Student loans can be a major hurdle when it comes to qualifying for a mortgage loan. There are folks who have tens of thousands of dollars of student loan balances.
High Balance Student Loan Guidelines on VA Loans
This holds especially true for those with graduate and/or professional educations. A medical doctor, dentist, or lawyer can have student loan balances of over $100,000 plus. Most mortgage loan programs require that deferred student loan debt be calculated in the calculations of the mortgage loan borrower’s debt to income ratios.
Fannie Mae and Freddie Mac Student Loan Guidelines
Conventional Loans always required that student loan debt payments be calculated in the calculations of the Conventional mortgage borrowers debt to income ratios, even deferred student loans. New guideline changes have taken effect. All deferred student loans, even student loan payments that have been deferred by 12 or more months, now need to be counted in the DTI Calculations on all government and conventional loan programs with the exception of VA Loans.
Fannie Mae And Freddie Mac Student Loan Guidelines
Fannie Mae and Freddie Mac, the two mortgage giants who set Conventional mortgage lending guidelines, require. 0.5% of the student loan balance be used as a monthly debt on all deferred student loans. Another option is to contact the student loan provider and get a fully amortized monthly payment amount over an extended payment plan (which is normally 25 years).
IBR Payments Now Allowed On FHA and Conventional Loans
FHA and Conventional loans now allow IBR Payments. This holds true as long as the IBR Payment is reporting on the credit bureaus. High student loan balances can disqualify any mortgage borrower. Many professionals with graduate and professional degrees and high student loan balances such as medical doctors, dentists, teachers, or attorneys have a difficult time getting qualified for mortgage loans.
FHA Guidelines On Deferred Student Loans
FHA Guidelines On Deferred Student Loans used to exempt deferred student loans that have been deferred by at least 12 or more months. However, under HUD 4000.1 FHA Handbook which was launched on September 14, 2015, deferred student loans that have been deferred for 12 or more months are no longer exempt from the FHA mortgage borrower’s debt to income ratio calculations. Under HUD 4000.1 FHA Handbook, FHA borrowers with deferred loans of 12 or more months are no longer exempt.
New Hypothetical Debt Used On Deferred Student Loans
They will need to have a fully monthly amortized payment amount over an extended term provided by the student loan provider. It needs to reflect what the monthly fully amortized student loan payment will be in writing. For borrowers who cannot provide this monthly amortized payment, the lender will use 0.50% of the outstanding student loan debt balance as the monthly payment.
VA Guidelines On Deferred Student Loans
VA Guidelines On Deferred Students Loans are much more lenient than any other government loan and/or conventional loan program. VA Loans is the only mortgage loan program that exempts student loans that are deferred from DTI Calculations. However, student loans need to be deferred for at least 12 months. Veterans borrowers with deferred student loans are exempt from student loans being counted in debt to income ratio calculations.
How Deferred Student Loans Can Be Exempt on VA Loans
The deferment needs to be at least 12 months or longer from the date of the VA Loan closing. If Veteran Borrowers can meet these terms, student loan debt payments will be exempt from your debt-to-income ratios calculations. This is a huge benefit for VA Loan Programs where it does not apply to any other mortgage loan program.
VA Guidelines On Deferred Student Loans Versus Non-Deferred
Veteran Borrowers with deferred student loans less than 12 months or those on a payment plan, this is how the U.S. Department of Veteran Affairs calculates student loan payments in DTI Calculations:
- Take 5% of the student loan balance
- Take 5% of the student loan balance and divide it by 12 months
That figure will be the hypothetical monthly student loan payment used by mortgage underwriters to calculate student loan payments.
Other Benefits Of VA Loans
Again, one of the greatest benefits that our government rewards our veterans is by offering VA Loans. Qualified Veteran borrowers can qualify for VA Loans with the following:
- 100% Financing
- 100% cash-out refinance
- 580 Credit Scores or lower as long with an approve/eligible per AUS FINDINGS
- VA does not have a minimum credit score requirement
- 2 year waiting period after Chapter 7 Bankruptcy
- 2 year waiting period after a short sale
- 2 year waiting period after foreclosure
- 2 year waiting period after a deed in lieu of foreclosure
- No debt to income ratio requirement: I recently closed on a VA loan with a 580 FICO and 65% DTI veteran homebuyer
Veteran homebuyers who need to qualify for VA loans with a lender with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.
March 21, 2022 - 6 min read