Gustan Cho Associates are experts in helping borrowers with higher debt-to-income ratios, especially due to higher student loan balances.
Mortgage Guidelines On Deferred Student Loans
There are extenuating circumstances like unemployment or periods of illness where consumers can get behind on their monthly student loan payments.
Forbearance On Student Loans
Student Loan Providers often offer forbearance to consumers due to the following reasons:
- A veteran member of military service who needs help finding employment or injured
- Work in an apprenticeship or internship work program
- Folks who are experiencing financial difficulties
- Unemployed
- Underemployed
Reasons Why Student Loan Providers Grant Forbearance on Student Loans
The above reasons are why student loan providers may grant forbearance on student loans. Consumers with forbearance are not forgiven their student loan debt, but their payments are postponed. Ronda Butts of Gustan Cho Associates explains income-based repayment on student loans.
If a borrower is on an Income-Based Repayment plan (IBR) and that debt is reported on the credit report, that IBR payment can be used for debt-to-income ratio calculations on FHA and conventional loans.
Another fact is that interest on their student loan balance will accrue during the forbearance period. Forbearance on federal student loans is not classified as delinquent, so it will not disqualify them from qualifying for home loans.
Conventional Mortgages With Deferred Student Loans
Conforming Guidelines on mortgages with deferred student loans are the most lenient of all loan programs. If there are no fixed payments on student loans, then 0.50% of the outstanding student loan balance is used as a hypothetical debt for underwriters.
Underwriters can use the 0.50% outstanding student loan balance as hypothetical debt when calculating borrowers’ debt-to-income ratios on FHA and conventional loans.
Many lenders will only accept fixed-rate IBR payments with Freddie Mac and Fannie Mae. For borrowers with outstanding student loan balances in deferment, 0.50% of the outstanding student loan balance will be used for the hypothetical debts.
FHA Mortgages With Deferred Student Loans
HUD, the parent of FHA, has different guidelines on qualifying for FHA Mortgages With Deferred Student Loans.
Every mortgage loan program has different guidelines for qualifying for mortgages with deferred student loans. Each government loan program has guidelines for qualifying for mortgages with deferred student loans. Fannie Mae/Freddie Mac Mortgages With Deferred Student Loans differ from government loan programs.
If the student loan balance is zero or income-based repayment, then 0.50% of the outstanding student loan balance is used by mortgage underwriters in calculating DTI. Or if a consumer can contact a student loan provider and ask them for a fully amortized monthly payment over an extended term. This needs to be in writing.
Using Fully Amortized Monthly Payment On Deferred Student Loans
Here is how to request fully amortized monthly payment over an extended term:
- I am applying for a mortgage
- My lender needs a fully monthly hypothetical payment
- It needs to be fully amortized over an extended term (normally 25 years)
- This figure can turn out to be less than 0.50% of the outstanding student loan balance
- This can be used instead of the 0.50% of the outstanding student loan balance
- VA Mortgages With Deferred Student Loans
VA Mortgage Guidelines on Deferred Student Loans
The United States Of Veteran Affairs (VA) is the only government home loan program exempting deferred student loan payments for more than 12 months. In this section, we will cover the VA guidelines on deferred student loans. VA loans are the only mortgage loan program exempting student loans deferred longer than 12 months from the debt-to-income ratio calculations.
FHA and conventional loans require a hypothetical monthly payment of 0.50% of the student loan balance is included in DTI calculations on deferred student loans if it has been deferred for more than 12 months from the closing date.
If student loan payments are to start within 12 months of closing, then we need to consider the borrowers’ monthly debt-to-income calculations.
VA Agency Guidelines on Student Loans
For veteran borrowers with large outstanding student loan debt that has not been deferred but are on IBR, here is what VA Guidelines State.
- Take 5.0% of the student loan balance debt
- Divide that number by 12 months
- The resulting figure will be mortgage underwriters’ hypothetical student loan debt on VA loans.
USDA Mortgages Deferred Student Loans
USDA Mortgage Guidelines on deferred student loans are the same as FHA loans. Deferred student loans need to be counted. It does not matter how long it has been deferred. Income Based Repayment or IBR does not count.
Just like FHA, USDA borrowers with higher student loan balances can contact their providers. If you got a fully amortized monthly payment over an extended term, you can use the amortized student loan payment.
Graduates can get a hypothetical monthly payment over an extended term that is fully amortized; after that term, the student loan is fully paid off. This figure turns out to be 0.50% more or less. This needs to be in writing for the mortgage underwriter.
Best Loan Program For Borrowers With Higher Student Loan Debts
Conventional loans are the best loan program for borrowers with higher student loan balances. Borrowers can use their Income-Based Repayment (IBR) on conventional loans.
There are many instances where borrowers have over $400,000 in student loans, and if their IBR payment is $70.00 per month and reflects on the credit report, we can use that $70.00 per month instead of the 1.0%.
If you have any questions about the content of this guide or need to qualify and get pre-approved for a mortgage, please get in touch with 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 evenings, weekends, and holidays seven days a week.
