topic Re: Student loan consolidation for PSLF before Pre-Approval? in Mortgage Loans

Student loan consolidation for PSLF before Pre-Approval?

tmt90 — Thu, 09 Jun 2022 17:06:21 GMT

Hi all,

My husband and I are gearing up to apply for pre-approval soon but I have a question related to student loans during the mortgage process. I am under the Public Service Loan Forgiveness program in which my loans can be consolidated for early loan forgiveness (i.e., my highest payment count would be applied to all my loans which shaves 3 years off for me). It's a total of 126k and all with FedLoans. However, I must do this before the Department of Education's deadline on October 31, 2022. Obviously this concerns us because we don't want any surprises during the pre-approval and underwriting process for a potential Nov/Dec close date. Before we apply for pre-approval, could you please advise on how a student loan consolidation (all federal loans) will impact us, if at all?

If it matters for context, our scores range from 750-800.

Thank you!

Re: Student loan consolidation for PSLF before Pre-Approval?

ShanetheMortgageMan — Thu, 09 Jun 2022 20:18:27 GMT

There shouldn't be any impact other than opening/closing accounts can impact your credit scores, worst case is you'd have to document the consolidation if it doesn't already reflect on the credit report.

FYI, if you are applying for Freddie Mac conventional financing then it might be able to be excluded from your DTI calculation if it meets the below.

The student loan payment may be excluded from the monthly debt payment-to-income ratio provided the Mortgage file contains documentation that indicates the following:

The student loan has 10 or less monthly payments remaining until the full balance of the student loan is forgiven, canceled, discharged or in the case of an employment-contingent repayment program, paid, or
The monthly payment on a student loan is deferred or is in forbearance and the full balance of the student loan will be forgiven, canceled, discharged or in the case of an employment-contingent repayment program, paid, at the end of the deferment or forbearance period

AND

The Borrower is eligible or approved, as applicable, for the student loan forgiveness, cancelation, discharge or employment-contingent repayment program, and the lender is not aware of any circumstances that will make the Borrower ineligible in the future. Evidence of eligibility or approval must come from the student loan program or the employer, as applicable.

Re: Student loan consolidation for PSLF before Pre-Approval?

zerofire — Fri, 17 Jun 2022 01:46:28 GMT

First in the case of a consolidation you will close your original student loans and open a new consolidated loan. Any payments made before consolidation will not count toward PSLF outside the grace period. There is currently a small grace period running that will count the preconsolidation payments and allow minor errors but as soon as it ends you will need to comply in full. Your new account age will go down. Consolidation now will most likely lower your score and kill any future timely completion of PSLF. If you qualify for PSLF you need to have it filed now. If not then do not go through consolidation.