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staces6
Posts: 13
Registered: ‎01-08-2012
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FHA, Student Loans, and IBR

I will talk to my LO tomorrow, but thought i would ask here tonight to see if anyone knows the answer..between my husband and I we have about $142k in student loans (YIKES) my husband's is 135k of that. His loans are all on IBR with 0 payment and will expire from IBR on 11/12, and i just applied for mine so they will be at 0 payment until Feb 13. My LO today told me that in order for the loans not to count towards our DTI we need to show a 0 payment for one year from closing, which is approx March 13. The IBR's are only for a year. I asked about re-doing my husband's so they would be good till feb of next year, but they said he would have to request his current IBR plan to stop and then re-apply which could all take 30 days, which I do not have. Our current income is what it will be staying at for atleast 2-3 years, so why can we not just show the IBR calculator and that we will be able to re-apply in nov and feb with no problem? How can we show a payment as 0 for one year from closing if they need the proof NOW and IBR's only run for 12 months from now? Not possible to get them to run till March?? Help? anyone ever dealt with this?

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cdtotten
Posts: 951
Registered: ‎05-27-2009
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Re: FHA, Student Loans, and IBR

I understand the question you are asking, but it also seems like a very bad thing to do. If student loans are deferred (which I believe you are saying they are... although income based repayment doesn't mean deferment..), for more than a year out, then yes, lenders will typically exclude them from your DTI calculations. Anything less, they usually won't, as this is a real payment that you will have to make that should be factored in. Despite having student loans myself, I believe the payment amount should always be included in your DTI calculation, so that individuals don't over-extend themselves.

 

They are pretty much correct, that you would have to drop the program and reapply to get things updated again, and you may not have any other options. That being said, if including the payment in your DTI is enough to throw your ratios out of whack, then you may be looking at too much of a home for your income. Student loans aren't going to go away, and especially on IBR, as you earn more money, your payment will go up and up. Don't over extend yourself or you will regret it like many others later. That is a lot  of debt, and I would be more concerned with purchasing a lesser home that allows me to pay that burden down, than circumventing underwriting rules.


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StartingOver10
Posts: 4,207
Registered: ‎03-06-2010
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Re: FHA, Student Loans, and IBR


cdtotten wrote:

I understand the question you are asking, but it also seems like a very bad thing to do. If student loans are deferred (which I believe you are saying they are... although income based repayment doesn't mean deferment..), for more than a year out, then yes, lenders will typically exclude them from your DTI calculations. Anything less, they usually won't, as this is a real payment that you will have to make that should be factored in. Despite having student loans myself, I believe the payment amount should always be included in your DTI calculation, so that individuals don't over-extend themselves.

 

They are pretty much correct, that you would have to drop the program and reapply to get things updated again, and you may not have any other options. That being said, if including the payment in your DTI is enough to throw your ratios out of whack, then you may be looking at too much of a home for your income. Student loans aren't going to go away, and especially on IBR, as you earn more money, your payment will go up and up. Don't over extend yourself or you will regret it like many others later. That is a lot  of debt, and I would be more concerned with purchasing a lesser home that allows me to pay that burden down, than circumventing underwriting rules.


+1

This is so true. Student loan balances in that magnitude are going to be with you for the long term. Buying a home is also a long term debt repayment plan. Excluding the student loan payment because you can do so according to current underwriting standards leads to a budget disaster if you have not accounted for the loan repayment in your own budget.

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MBOhio2
Posts: 946
Registered: ‎02-07-2011
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Re: FHA, Student Loans, and IBR

+1

 

I hate to pile on, but I have to strongly agree with previous posters. Most lenders allow a pretty high back-end DTI, so if you cannot stay within the maximum DTI unless you exclude your student loan payments, then you are setting yourself up for a lot of stress later. My husband and I also have high student loans, about $250K worth (darn law school, and you thought your balance was high!!) and we are also on IBR and I have to tell you, once you are required to be making payments, it's a large payment. Make sure that whatever you borrow, you can still afford even after you're required to start making actual payments on the loan. Good luck! :smileyhappy:

Mid-2010 Starting Scores: FAKO EQ 476 FAKO EX 506 FICO TU98 575
Jan 2012 Current Scores: FICO EQ 604 FICO EX ??? TU98 623
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Valued Member
missfontella
Posts: 33
Registered: ‎12-15-2011
0

Re: FHA, Student Loans, and IBR

I'm confused.

 

So if you are on IBR and IBR renews yearly, then you have to apply for your home loan the same month that your IBR is approved/ renewed?

 

If so, that is terribly inconvenient.  Just to be clear. I'll ask in the form of an example. So get a IBR payment of $150 a month for my student loans in April. In June, when I apply for a mortgage, the lender/underwriter/FHA/whoever will require that I reapply for my IBR in order for my $150 payment to be the payment of record to be counted towards my DTI?

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Senior Contributor
Booner72
Posts: 3,889
Registered: ‎05-24-2011
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Re: FHA, Student Loans, and IBR

My IBR amount changed midway for me during my house buying process..  I called Directloans and asked them to please credit-report the new amount, which they did right away (maybe they were going to anyway but who knows with directloans)....I went from 47 a month to 124 a month and all my LO did was went with the amount that was reporting on the credit reports.  They never even questioned that this amount could potentially go up each year, or down....

 

is your situation different because your payment is zero?  Is that why they are looking at it so closely?

 

And what are you guys talking about reapplying every year?  I know that they re-look at your income each year and then send out a new payment based on the last year's taxes.....but I don't have to reapply....at least I don't think I do and I've been doing it for over two years.......

 

FYI:  If you are going to do married filing separate, which I do, to keep my payment low, then you need to know that you cannot itemize your taxes unless you BOTH do, that you can't claim kids if you make over 55K, there are tons of little hidden ways that the government gets you for filling separate.  But instead of a 690 payment, I'll take the tax hits.  Also, the only thing I can write off for the house we just bought is the interest, not PMI or taxes!!

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Established Contributor
MBOhio2
Posts: 946
Registered: ‎02-07-2011
0

Re: FHA, Student Loans, and IBR

[ Edited ]

missfontella wrote:

I'm confused.

 

So if you are on IBR and IBR renews yearly, then you have to apply for your home loan the same month that your IBR is approved/ renewed?

 

If so, that is terribly inconvenient.  Just to be clear. I'll ask in the form of an example. So get a IBR payment of $150 a month for my student loans in April. In June, when I apply for a mortgage, the lender/underwriter/FHA/whoever will require that I reapply for my IBR in order for my $150 payment to be the payment of record to be counted towards my DTI?


I think you have misunderstood. There is no "re-applying" for IBR. For the Direct Loans IBR repayment program, the payment you are required to make adjusts each year in response to the income you report to the IRS when you do your taxes. I cannot recall the exact timing, but sometime in the Spring of each year, after I file my taxes, my required payment amount to Direct Loans adjusts to be aligned with my income for the previous year.

 

From what I can tell, OP currently makes such a low income that she is not currently required to pay anything to Direct Loans under the IBR repayment (there is a minimum income threshhold where you are basically in deferrment until your incom increases). However, if her income increases in the future, the payment amount will be recalculated and she will be required to make payments.

 

For mortgage purposes, whatever your payment amount is at the time of application will be used for DTI, but since OP's payment is currently $0 (essentially a deferment), I think it's causing her some issues because lenders require deferments to be for at least 12 months in order to not include that payment in DTI. Of course, since IBR re-sets each year, it's nearly impossible to be able to show that her current "deferment" will last for at least 12 months. For OP, it sounds like she's in a little bit of a catch-22 because of how the IBR system works.

Mid-2010 Starting Scores: FAKO EQ 476 FAKO EX 506 FICO TU98 575
Jan 2012 Current Scores: FICO EQ 604 FICO EX ??? TU98 623
Feb 2012 Goal Scores: EQ 620 EX 620 TR 620 (or just the middle to be 620!!)
Valued Member
missfontella
Posts: 33
Registered: ‎12-15-2011
0

Re: FHA, Student Loans, and IBR

Okay, that makes more sense. So the OP's issue is not IBR but instead the payment of $0. Thanks for clearing that up. I feel better now. I was scared because IBR will be necessary for me to get a decent DTI. But no worries.:smileyhappy:

Starting Scores: TU - 577, EQ - 636, pulled on 01/10/12
Current Scores: TU - 679 (02/21/13) EQ - 663 (02/23/13)
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Regular Contributor
goodygoody
Posts: 199
Registered: ‎04-07-2009
0

Re: FHA, Student Loans, and IBR

I am on the IBR plan too, and I think maybe the issue the OP has is whether the DTI will be adjusted based on what they actually have to pay OR whether it is going to be adjusted based on what someone who is not in IBR would pay.  IBR can never be more than (unless they increased it) 15% of your income, so it doesn't seem like the OP would suddenly be unable to pay a mortgage and the loan payment.  The only way the loan payment could suddenly be drastically higher would be if OP's income suddenly were drastically higher, in which case OP could afford the loan payment anyway.  IBR is NOT a deferral.  It is possible to stay on IBR for 25 years with a payment of $0.  In fact, after 25 years the outstanding balance is waived.  Only problem with that being that the amount waived can be considered taxable income (though I've been told it's possible to have that waived too if you're lucky). 

Senior Contributor
Booner72
Posts: 3,889
Registered: ‎05-24-2011
0

Re: FHA, Student Loans, and IBR

IBR announced that the forgiven debt is not taxable.  It's on their website.

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