Are Student Loans Ruining Our House Dreams?

[Anonymous]

Prospective First-TIme Home Buyer  - I've been working on our credit like crazy and we finally went from mortgage scores of

11/26/17

Experian	562
Equifax	537
Transunion	574

to

12/7/17

Experian	607*
Equifax	631
Transunion	650

*EX has been slow to update but this number is lower than I anticipate. I also expect a significant additional gain as I just got a removal of a 90 day late that hasn't show up yet. 

No collections, a few late payments after having medical issues, no judgements, BK, etc. About $8500 in revolving plus about $25,000 in installment debt (cars, other loans)

A major roadblock to our ability to buy a home is my massive (~$120,000) in student loan debt - scary I know. I work in the public sector, income is over $100k with 5% pay increases annually and I plan to enroll in the Public Loan debt forgiveness program once I start paying. Right now all of my Fed loans are deferred, I am paying around $350/month on WF private loans.

A few loan officers I've talked to won't even engage because of the 1% requirement which puts my DTI pretty high. Will I have to pay down my loans before I can purchase even though they will be forgiven anyway? Its getting pretty discouraging...

[Anonymous]

Income over $100K puts your 1% student loans at less than 12% of your DTI.  It isn't the student loans alone, it's all the debt you need to clear out.

The student loans aren't a priority since some of that will get forgiven so you just need to tackle everything else.  Are your other installment loans secured items you can downsize or liquidate to pay off the loans?  Is your credit card debt from emergencies or from stretching your future income?  

I believe qualified mortgages are 43% DTI ceiling, right?  So subtract 12% and you're left with 31% DTI for mortgage.  If your income is exactly $100,000 that leaves you with $31,000/12 = $2583 per month.

What am I missing here in my napkin math?  I don't see why anyone would disengage a discussion if all that's holding you back is non-student loan debt that should be quashed anyway before apping!

[Anonymous]

Thank you for the analysis! I was told by a few loan officers to consider paying down my student loans and/or that it would be difficult to qualify with that amount of debt. My actual income is around $115,000/annually.

The bulk of the installment loans is our car payments which we acquired when our credit was not credit, $12,500 and $8500. The other is a personal Avant Loan for $5,500 and NFCU - $4500.

Credit card debt was mostly acquired during a medical issue I had when I couldn't work and we used them survive. We've been throwing every dime we have to pay it down.

[Anonymous]

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@Anonymous wrote:

Thank you for the analysis! I was told by a few loan officers to consider paying down my student loans and/or that it would be difficult to qualify with that amount of debt. My actual income is around $115,000/annually.

The bulk of the installment loans is our car payments which we acquired when our credit was not credit, $12,500 and $8500. The other is a personal Avant Loan for $5,500 and NFCU - $4500.

Credit card debt was mostly acquired during a medical issue I had when I couldn't work and we used them survive. We've been throwing every dime we have to pay it down.

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I'd say your best bet is to list every account you have and what the monthly payment is -- including student loans, credit card minimums, installment loans, etc.  Gross income is $9583/month?  Student loans at 1% is $1200/month or 12.5%.  Qualified mortgages cap at 43% DTI if I am remember correctly (please verify, I have never had a mortgage due to lucky real estate timing decades ago) so you're looking at $2922 remaining per month after student loans.

Go to a mortgage calculator, type in the size of mortgage you want along with interest rate and any down payment and see what the mortgage payment will be monthly.  Subtract that mortgage payment from $2922.  The number that is left?  Use that number to see what loans or credit cards you need to pay off entirely so you are left with a workable DTI!

[Anonymous]

Most helpful advice I've received thus far! I talked to a mortgage lender today and he is willing to work with us. Said very much the same thing. Thank you!

[VALoanMaster]

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@Anonymous wrote:

Most helpful advice I've received thus far! I talked to a mortgage lender today and he is willing to work with us. Said very much the same thing. Thank you!

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You should look into putting your student loans on an IBR program so you don't have to use 1% of the balance.

[Anonymous]

Thank you, I will definitely do that. It should decrease the DTI significantly. 

What really bothers me is somehow I managed to find the lenders least willing to give advice...this entire time I thought it was hopeless to even think about starting to consider owning our own home....really appreciate this board!

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@VALoanMaster wrote:

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@Anonymous wrote:

Most helpful advice I've received thus far! I talked to a mortgage lender today and he is willing to work with us. Said very much the same thing. Thank you!

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You should look into putting your student loans on an IBR program so you don't have to use 1% of the balance.

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[Anonymous]

My new awesome lender did  a quick review and ended up with debt all in at $1934/month. The advice for the student loans was spot on - my IBR would only be $240.71 instead of the 1% at over $1000/month.

[VALoanMaster]

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@Anonymous wrote:

My new awesome lender did  a quick review and ended up with debt all in at $1934/month. The advice for the student loans was spot on - my IBR would only be $240.71 instead of the 1% at over $1000/month.

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Since I'm the one that provided the solution, wouldn't that make me your new awesome lender?

[Anonymous]

So I was confused, it's FHA that's the issue, we're going to have to go conventional, now to get up to 720 fast....