How high student loans are viewed by lenders?

[webhopper]

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@Anonymous wrote:
So, basically, they'll include your monthly student loan payment as part of your DTI to see if you're income is enough to pay those (and any other bills) AND your mortgage. Am I correct?

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Edit to correct info:

Taken from About.com

• Front-End Ratios

  Lenders use what is called a front-end ratio, which is reflected as a percentage of your gross monthly income. The front-end ratio signifies the payment a buyer can reasonably afford, from a lender's point of view. You may prefer a lower payment.

  The front-end ratio for a FHA loan is 31%. For a conforming conventional loan, the front-end ratio is 33%. This means if your monthly gross income is $4,000, to qualify for the maximum FHA loan, your monthly principal, interest, taxes and insurance (PITI) payment can not exceed $1,240. For a conventional loan, it is $1,320.

• Back-End Ratios

  The back-end ratio reflects your new mortgage payment, plus all recurring debt. It, too, is computed on your gross monthly income. The back-end is higher than the front-end. For an FHA loan, the back-end ratio is 43%. For a conforming conventional loan, it is 45%.

  This means if your car payment is $300, and you pay $100 a month between two credit cards, your total monthly recurring debt is $400. On the FHA loan payment above of $1,240 PITI, plus $400 recurring debt, your total is $1,640. The back-end ratio number is $1,720 ($4,000 x 43% = $1,720). Your total debt is less than $1,720, so you qualify.

  For a conventional loan, $4,000 x 45% (back-end ratio), equals $1,800. The total debt of $400, plus your new mortgage payment of $1,320 for a conventional loan equals $1,720. Your total debt is less than $1,800, so you would qualify for a conventional loan.

[webhopper]

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@webhopper wrote:

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@Anonymous wrote:
So, basically, they'll include your monthly student loan payment as part of your DTI to see if you're income is enough to pay those (and any other bills) AND your mortgage. Am I correct?

---

Edit to correct info:

Taken from About.com

• Front-End Ratios

  Lenders use what is called a front-end ratio, which is reflected as a percentage of your gross monthly income. The front-end ratio signifies the payment a buyer can reasonably afford, from a lender's point of view. You may prefer a lower payment.

  The front-end ratio for a FHA loan is 31%. For a conforming conventional loan, the front-end ratio is 33%. This means if your monthly gross income is $4,000, to qualify for the maximum FHA loan, your monthly principal, interest, taxes and insurance (PITI) payment can not exceed $1,240. For a conventional loan, it is $1,320.

• Back-End Ratios

  The back-end ratio reflects your new mortgage payment, plus all recurring debt. It, too, is computed on your gross monthly income. The back-end is higher than the front-end. For an FHA loan, the back-end ratio is 43%. For a conforming conventional loan, it is 45%.

  This means if your car payment is $300, and you pay $100 a month between two credit cards, your total monthly recurring debt is $400. On the FHA loan payment above of $1,240 PITI, plus $400 recurring debt, your total is $1,640. The back-end ratio number is $1,720 ($4,000 x 43% = $1,720). Your total debt is less than $1,720, so you qualify.

  For a conventional loan, $4,000 x 45% (back-end ratio), equals $1,800. The total debt of $400, plus your new mortgage payment of $1,320 for a conventional loan equals $1,720. Your total debt is less than $1,800, so you would qualify for a conventional loan.

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On my house that I closed early this year, my front end ratio was only 17%,  but back end ratio was about 41% cause I already had a house that I was keeping, so i had to qualify for both mortgages on the back end  

[thankfulheart]

I jokingly call it the "Irritable Bowel Repayment" plan as it makes me sick to have to pay all of tha back it's really income-based, though.

[Anonymous]

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@webhopper wrote:

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@Anonymous wrote:
So, basically, they'll include your monthly student loan payment as part of your DTI to see if you're income is enough to pay those (and any other bills) AND your mortgage. Am I correct?

---

Edit to correct info:

Taken from About.com

• Front-End Ratios

  Lenders use what is called a front-end ratio, which is reflected as a percentage of your gross monthly income. The front-end ratio signifies the payment a buyer can reasonably afford, from a lender's point of view. You may prefer a lower payment.

  The front-end ratio for a FHA loan is 31%. For a conforming conventional loan, the front-end ratio is 33%. This means if your monthly gross income is $4,000, to qualify for the maximum FHA loan, your monthly principal, interest, taxes and insurance (PITI) payment can not exceed $1,240. For a conventional loan, it is $1,320.

• Back-End Ratios

  The back-end ratio reflects your new mortgage payment, plus all recurring debt. It, too, is computed on your gross monthly income. The back-end is higher than the front-end. For an FHA loan, the back-end ratio is 43%. For a conforming conventional loan, it is 45%.

  This means if your car payment is $300, and you pay $100 a month between two credit cards, your total monthly recurring debt is $400. On the FHA loan payment above of $1,240 PITI, plus $400 recurring debt, your total is $1,640. The back-end ratio number is $1,720 ($4,000 x 43% = $1,720). Your total debt is less than $1,720, so you qualify.

  For a conventional loan, $4,000 x 45% (back-end ratio), equals $1,800. The total debt of $400, plus your new mortgage payment of $1,320 for a conventional loan equals $1,720. Your total debt is less than $1,800, so you would qualify for a conventional loan.

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So, does your lender decide which ratio to use or the ratio depends on the lender?

[Anonymous]

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@thankfulheart wrote:
I jokingly call it the "Irritable Bowel Repayment" plan as it makes me sick to have to pay all of tha back it's really income-based, though.

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Edit to correct spelling error:

Lol. Besides my student loans and normal living expenses (utilities, insurance, etc), my only other debt is a $90 CC bill that I'm maintaining to keep it to 1-3% utilization. Fortunately, I make pretty good money. So, I'm really hoping the student loans aren't an issue.

[delayedinsanity]

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@goodygoody wrote:

Hi there.  I took out about $70,000 in student loans for a BA and a Master's (and a $8000 travel abroad semester), had them put on the Income Contingent Repayment plan and had a payment of $0 for about 6 years (while the interest kept accruing).  I currently have a payment of $133 a month.  Everything's up to date and fine, other than the insane amount of money I'll never be able to repay.   

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Whoah, hold the wagon. I have 25k less than you in student loans, and my monthly payment is $356. How did you manage to get monthly payments of $133? Is there a lender I can transfer to which offers a 50 year repayment plan? I plan on putting all my tax returns towards the balance of this loan for the next five to ten years in hopes of bringing it down to something reasonable, but having payments of $133 a month would take SO much stress off that I could almost breath again.

[goodygoody]

I'm in Income Contingent Repayment through Direct Loans - you consolidate all your loans through them and they use a government formula based on the number of people in your family and the cost of living to calculate your payment.  I think there are income limits to get ICR, but not sure.  The really bad part about it is that interest still accrues normally, so your debt will increase far more than it would under normal repayment.  After 25 years, your remaining debt is discharged.  At that point, you have to report it as taxable income, which also sucks.  However, supposedly you can tell the IRS that paying this would be a hardship and they might reduce it - I've never been able to find out if this is really an option.  Otherwise if you can't pay the tax you have to make a repayment plan to the IRS (which would still be less than the discharged loan).  There was legislation a while back to get rid of the tax on discharged student loans, because it's absurd - if someone can't pay a loan after 25 years, they obviously can't pay some high tax on one. 

Anyway, ICR is a great option if you have really high loan payments that are not workable.  I really regret going into the debt I did, but being at home with my kids makes any amount of tax later on worth it.  I just keep hoping they'll get rid of the taxes - I think part of the problem is that a lot of people don't even know about ICR and also the people on it don't realize that the discharged loans are taxable.  So there's no real "outcry" about it. 

[delayedinsanity]

I might not qualify due to my loan being private through AES and underwritten by PNC. I'm going to call and ask around though, because while we are managing to afford the payments it's hurting us in other areas and while I refuse to have late payments on my report I am less than enthused about paying back a student loan that didn't even benefit me. Thanks for the lead though, I have heard of IBR in the past and will continue to look for routes that let me make this more manageable!

[goodygoody]

Well, make sure you read up on the differences between ICR and IBR (they're two different programs).  Another poster on here said that the payments on IBR can become really big really fast, though i'm not exactly sure why.  I know ICR has to base the payment on your family size, deduct cost of living, and then takes a percentage of what's left as the actual payment - no idea how IBR calculates theirs.  The upside to IBR - according to the same poster - is that any amount forgiven is not taxable as it is on ICR.  I think you might be able to get private loans on ICR if you consolidate them with Direct Loans - I'd give them a call - they're always really helpful.

[delayedinsanity]

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@goodygoody wrote:

Well, make sure you read up on the differences between ICR and IBR (they're two different programs).  Another poster on here said that the payments on IBR can become really big really fast, though i'm not exactly sure why.  I know ICR has to base the payment on your family size, deduct cost of living, and then takes a percentage of what's left as the actual payment - no idea how IBR calculates theirs.  The upside to IBR - according to the same poster - is that any amount forgiven is not taxable as it is on ICR.  I think you might be able to get private loans on ICR if you consolidate them with Direct Loans - I'd give them a call - they're always really helpful.

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I'll do that, read up on the two, before I give them a call. I'm in deferment until August, but it's the last time I'll be able to, so I hope to have our course for the foreseeable future finalized and in stone by then... I appreciate you turning around to help me on that question when I wasn't able to provide any help to your original question.