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Student Loans and Home Pre-Approval Process

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Anonymous
Not applicable

Student Loans and Home Pre-Approval Process

I posted for the first time in the FICO forums a few weeks ago for my brother and was surprised with the assistance and depth of knowledge from the users that post. So first of all THANK YOU!Smiley Happy

 

I feel confident in recieving sound advice on my own minor fiscal issue:

 

After close to three years or repairing my credit, my credit is now up to where I can apply for an FHA loan to purchase a home. I am very excited, there are tons of programs to assist first time homebuyers in Chicago.

 

I am currently in the process of mortgage shopping to determine where I can get the best rate and to obatin a pre-approval to buy a home. One lender quoted that I would be available to be approved for $150,000. Now, I have 4 credit cards (revolving credit) which are all but paid (maintaining the lowest balance on all cards so they aren't paid in full, but also aren't showing as an overextension of credit). I do not own a car, or rent (live at home with mom). I do however, have 75,000 in Student Loans (all of which are currently in deferment, and will be until 2013.) 


Should lenders take my student loans into consideration when considering my home buying readiness, even though they are in deferment? I can understand the thought behind why they might do that, considering the previous housing bubble, but it is also a big letdown to someone like me that did the work to clean up my credit to get to this point and then receive this less than favorable news.

 

All thoughts and advice are appreciated. Thank you!

Message 1 of 8
7 REPLIES 7
Heavanly1
Regular Contributor

Re: Student Loans and Home Pre-Approval Process

If you'r student loans are in deferment twelve months or more at the time of your pre-approval, they will not be calculated in your debt-to-income ratio. Depending on how long it takes you to find and close on a home, your lender may ask you to extend your deferment even longer.

 

Therefore, it will be up to you to be extremely diligent in making sure that you can afford your mortgage AND your student loan payment when they come out of deferment.

Message 2 of 8
Anonymous
Not applicable

Re: Student Loans and Home Pre-Approval Process

Thank you for your response!

 

I verified with Sallie Mae that my loans are definitely in deferment until 2013. 

 

I felt a bit discouraged when the lender informed me that I would be available for $150,000 - I had done a lot of work getting my credit score up (and still working hard everyday!) to see that the houses that I've viewed online are nowhere near what I thought I might be eligible for. I'm basically between a rock and a hard place - a lot of the first time homebuyer programs in my area are income based, so right now my income is where it should be if I qualify...but the only thing I'm thinking is that I need a new job with a higher salary so my debt to income ration will match more ($36,150 yearly income, and $113.00 future student loan payment, when they come out of deferment) so I am starting to feel as if I am back at step one on the home buying front.

Message 3 of 8
Homebuyer24
Valued Member

Re: Student Loans and Home Pre-Approval Process

Hi--good luck on buying your first home.  Sounds like there are good programs for first timers in your area.  I get the impression you're still in school and hopefully once you graduate you will be able to get a job that pays more--though you seem to be doing pretty well, especially for a college student. 

 

I just had a question on the $113 payment.  I have over $70K in student loans and my payment would be over $800/month.  It was $300 using graduated payments but eventually I would be paying over $1500/month (figured I'd worry about it later).  I am now on IBR payment and pay almost $400/month but I make more money now so my payment is probably going to go up.  The reason I bring this up is I read somewhere on here for student loans they will be going to calculate the regular payment, not the actual payment as their is no way to prove that the actual payment won't fluctuate on iBR (because it will based on my income).  A lender did ask me if I could prove my payments would stay the same for 2 years and maybe on another plan I could've, but not with IBR.  I am doing IBR so I can qualify for PSLF after 9 years now.  

 

Since your loans are deferred and they won't count them, this could be an issue if you wait after you graduate to get a home loan.  However, you could be making more money after you graduate--or not.  It's kind of a gamble.  I was offered a job halfway through college that would've paid me more than I make now, but I felt it was important to get my degree and ended up with a pretty good, but lower paying, job with a degree.  

Message 4 of 8
Heavanly1
Regular Contributor

Re: Student Loans and Home Pre-Approval Process

I agree with Homebuyer24

 

With $75k in student loans, you're payment should be much higher than $113 a month. I owe $32k in student loans and my payments are $255 a month, on a standard 20-year repayment plan.

 

Unless your student loans are subsidized, you won't be able to determine the exact payment until they come out of deferment but you can get a rough estimate.

 

Please double -check and let us know what your student loan payments will be so that we can give you more accurate advice.

Message 5 of 8
Anonymous
Not applicable

Re: Student Loans and Home Pre-Approval Process

As the other stated, the banks do nto go by any graduated payment plans or such.  When you are on a variable pament setup, they have a base payment amount hey use for each loan based on the maount of it.  SO if they caount it in, they will count much more than 113.  Even if they do not, you need to factor in a payment probably closer to 400 per month for 75K to really figure out affordability.

 

One thing..  That 150K number has nothing to due with your student loans.  It is all about your income.  I am almost certain they are not being counted if you got pre-approved for 36K per year only allows for a mortgage payment of a bit less than 1K per month to stay under the 31% mortgage debt guideline.  Even if they stretch that up to the 43% max total debt, you are only looking at having roughly 1300 available.  The bottom line is that even 150K is WAY more than anyone one 36K income should spend.  that is over 4x your salary.  It would also be anywhere from 1/2 to 2/3rds of your take home pay (depending on taxes and insurance) without even factoring in maintenance, higher utility costs, etc.

Message 6 of 8
mauve
Valued Contributor

Re: Student Loans

And on a slightly unrelated note, you don't need to maintain a balance on all of your credit cards - for ideal scoring, you would have a 0 balance on all but one and a balance of less than 9% on that one.  I'd rotate which one carries a balance to keep them all active and reporting.


Starting Score: EQ 583 TU04 619 EX 592 (lender pull) 2010
Previous High Score: EQ 700 TU04 712 EX 726
Current Score: EQ 740 TU(Discover) 750 EX(AMEX) 747
Goal Score: 740+ all around


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Message 7 of 8
Anonymous
Not applicable

Re: Student Loans and Home Pre-Approval Process

I definitely had not considered this - but after looking at the debt to income ratio chapter in the Dummies book for Home Buying (yes, I'm on of THOSE people) I am realizing that I need to do my best to come in under $150K because it is definitely pushing it (even with no utilities) when student loans kick in, I want to be able to stay on the right path of fiscal responsibility. Smiley Happy

 

Besides that, I can hope that in the near future, I will get a better paying job, in this economy. We will see. Now that I understand how things are factoring into my scenario, I see that I should direct my focus to finding something I can comfortably afford. Thank you everyone for your insight. I literally print these replies and set them in my homebuying folder to share with my realtor. 

Message 8 of 8
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