Student Loans...making me nervous

[Anonymous]

Hello!

So I've recently inquired on an excellent mortgage loan opportunity with an unheard of interest rate, 100% financing and I qualify on the Credit Score and Income requirements. However, there is a DTI reqirement and currently I'm fine if I do not include my student loans. Problem is I'm still in school and scheduled to graduate in May. I've been trying to get information on how my student loans may affect my chances of getting approved because based on what I'm reading, they use a percentage of the total loan and use that as a monthly payment (which is absurd and unheard of in my case to pay monthly). Even if I take 1%, it will push my DTI way over the limit. I won't start repayment until Jan 2017 and I definitely will be utilizing the Income Base Repayment option. 

My question(s): Is there anything I can do at this point to get documentation estimating what my student loan payments would be starting in Jan? If not, should I even bother going forward? lol. I have a friend who is a realtor and I've been looking at houses so that when I apply (and hopefully get pre-approved) I can act quickly. I'm waiting for my CC balances and score to update and plan to apply next month. Would rather not have this pull on my credit if my chances are slim to none.  

Thanks for any insight and help!

[Anonymous]

From dpeezy in April of last year:

FHA loans before September 14, 2015:

-Will use actual documented loan payment

-If deferred for less than 12 months at closing, will use 5% of balance owed if future payment can not be proved with documentation

-If deferred for more than 12 months at closing, debt is not counted

FHA loans on or after September 14, 2015:

-Will use actual documented loan payment

-If deferred (regardless of how long), will use future payment amount

-If loan is in deferment and future payment cannot be determined, will use 2% of the balanced owed

If you are using conventional, then they will use the higher amount of either 1% of the balance or what you are paying monthly. They can use lower than 1% if the amount you pay will pay off the loan without any changes, so it would have to be a Standard or Extended Standard repayment plan. If you use IBR for repayment and have a conventional loan, they'll use the 1% number.

[Anonymous]

Ugh, that's so annoying! 

Even if I had zero debt and just student loans, the 2% would still put me at a crazy high DTI. Makes absolutely no sense to me. The funnier thing about this is that should I get approved and have the loan pass, I'd be paying less a month in mortgage payments than I am right now in rent and still would be able to pay off my student loans at the IBR #'s thats estimated on the Department of Education website.

Oh the list continues to grow on how wasteful getting a degree is now-a-days. Sorry for the rant here but my friends are tired of hearing me say it, so I'm passing it on to you all, LOL!

Thanks for the response!!

[Anonymous]

As long as the payment you're making is documented and verified, then the 2% will not apply. Or if the payments are in deferment, then you would just need to get the hypothetical payment amount verified by your lender to avoid the 2% number.

[Anonymous]

Hi SouthEast,

Whew! Well I guess there is some hope then! My payments are still in deferment because I'm still in school. I'm hoping that I can get my balance to-date and have the department of education calculate a hypothetical payment amount to give to them to avoid that 2%. There's gotta be someone else that has been in the same boat as me that the DOE has a procedure for. 

Thanks so much again! You've definitely eased my mind.

[Anonymous]

Glad to help. It was something that caught me off guard last year as well.

[thegrapelady]

Does anyone know, do these new guidelines apply to co-signers as well? I co-signed two student loans for my partner who is still in school. I am applying for an FHA loan and all we are waiting on is a letter stating that the loans are deferred until Jan 2018 and what the estimated payments are. My loan officer said if they are deferred for 18 months (or longer) then they will not be counted. Now I am getting a little nervous.

[Anonymous]

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@thegrapelady wrote:

Does anyone know, do these new guidelines apply to co-signers as well? I co-signed two student loans for my partner who is still in school. I am applying for an FHA loan and all we are waiting on is a letter stating that the loans are deferred until Jan 2018 and what the estimated payments are. My loan officer said if they are deferred for 18 months (or longer) then they will not be counted. Now I am getting a little nervous.

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Your lender is incorrect. The only loan type that will allow for deferred student loans to not be counted in your DTI is VA. Regarding the co-signer, typically the only way you can "not count" a co-signed obligation in your DTI is if you have 12 months of history (i.e. canceled checks) proving the other person made the monthly payment in full and on time. Since there is no payment history, it is likely the student loans would affect your DTI even if you were only the co-signer.

[Anonymous]

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@Anonymous wrote:

From dpeezy in April of last year:

FHA loans before September 14, 2015:

-Will use actual documented loan payment

-If deferred for less than 12 months at closing, will use 5% of balance owed if future payment can not be proved with documentation

-If deferred for more than 12 months at closing, debt is not counted

FHA loans on or after September 14, 2015:

-Will use actual documented loan payment

-If deferred (regardless of how long), will use future payment amount

-If loan is in deferment and future payment cannot be determined, will use 2% of the balanced owed

If you are using conventional, then they will use the higher amount of either 1% of the outstanding balance or your actual monthly payment. The only exception to this if your actual monthly payment is under 1% of the outstanding balance, and that monthly payment will fully amortize the student loan without any payment adjustments (so it would have to be a Standard or Extended Standard repayment plan where your payment doesn't adjust). Basically, If you use IBR for repayment and have a conventional loan, they'll use the 1% number.

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Edited to provide more clarity.