DTI by modifying Student Loan repay plan?

[Anonymous]

I apologize if this has already been posted, I had seen people changing to IBR to lower their DTI but not to a Graduated Payment plan.

Current SL Balance= 40k
Monthly payment= $630

It would actually be helpful to me if the 1% of total balance was used in front end DTI calcs, but the way I understand the FHA guidelines is that it is the greater of 1% total balance or your monthly payment. Is this correct?

I looked and I can switch to a Graduated Payment plan and my monthly payment would be around $250 for 24mo, then increase at a graduated rate every 24mo after. Would doing this mean the payment for FHA's DTI calc would change to 1% of the total balance (since that would be $400, $400>$250)? Ideally it would be awesome to use the $250 as the monthly payment for DTI calc but I realize thats probably not likely.

Thanks everyone for your help!
Dave

[kc0039]

So why do you need to lower your DTI? Have you been pre-approved yet to see if you can qualify for the range that you're looking for?

[Anonymous]

I ran into this very same issue when the UW used 1% of my student loan balance because I was on the IBR plan. I was originally denied for my first loan. What I had to do was change my student loan repayment plan to a standard plan that will fully amortize the loan over its term. That documentation is needed for the UW or they will use the 1% or whichever is greater unless you have supporting documentation.

You can always switch back to the IBR plan after you close on your home. I makes zero sense but that's the only thing I think can work.

[Anonymous]

Thank you both for the replies. KC, DTI is currently on the high side for conventionals. Would be able to go FHA route but trying to keep my options open.

I should have been more clear, the Graduated Payment plan is not IBR, its a plan offered by Navient that just changes your monthly payment amount to start lower and then gradually increase. Since it isnt IBR I was wondering how that would effect DTI. For example if I changed to this payment plan I'd cut my monthly payment 2/3rds for the next 24months. My assumption is that since 1% of the total balance is a larger amount than the $250 (new monthly payment with Navients Graduated Plan), the 1% would be used for DTI calcs. Thats just a guess though I can't seem to find the answer.

[kc0039]

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@Anonymous wrote:
Thank you both for the replies. KC, DTI is currently on the high side for conventionals. Would be able to go FHA route but trying to keep my options open.

I should have been more clear, the Graduated Payment plan is not IBR, its a plan offered by Navient that just changes your monthly payment amount to start lower and then gradually increase. Since it isnt IBR I was wondering how that would effect DTI. For example if I changed to this payment plan I'd cut my monthly payment 2/3rds for the next 24months. My assumption is that since 1% of the total balance is a larger amount than the $250 (new monthly payment with Navients Graduated Plan), the 1% would be used for DTI calcs. Thats just a guess though I can't seem to find the answer.

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1% will be used for DTI calucation for FHA and Fannie Mae loans. Freddie will use IBR, but you have to find a lender that will do it for you.

[Anonymous]

Thanks for the reply KC. I can't use IBR, the Graduated Plan I'm referring to is not IBR. It will fully amoritize the loan through its term, paying less now and more later. Here is the info that I've found from HUD 4000.1:
Student Loans
(4) Calculation of Monthly Obligation
Regardless of the payment status, the Mortgagee must use either:

the greater of: 1 percent of the outstanding balance on the loan; or the monthly payment reported on the Borrower’s credit report;

OR the actual documented payment, provided the payment will fully amortize the loan over its term.

Here's where I can't get the answer. Since the Graduated Payment plan will fully amoritize the loan over its term, and will allow me to change my monthly payment to $250 from $630 (at least for the 1st 24mo), then I should be able to use the $250 for DTI calcs correct? Please keep in mind the Graduated Payment plan is not IBR.

[DallasLoanGuy]

the payment we use to calculate dti must fully amortize the loan over the term. and the low upfront payment does not fully amortize the loan. 

we would use 1% of your balance

[monkeywre]

For a fully amortized payment, the plan with the lowest payment is referred to as extended fixed repayment.

[DallasLoanGuy]

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@monkeywre wrote:

For a fully amortized payment, the plan with the lowest payment is referred to as extended fixed repayment.

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which means?

extended term to 25yrs or something?    isnt the standard repayment 20yrs?

[monkeywre]

Standard is 10 years. Extended fixed is 25 years.