Best student loan repayment plan for mortgage qualification?

[Anonymous]

Thanks in advance for any assistance.  I've been turned down by multiple lenders because of my DTI being too high, primarily from student loans that are in deferment.  It's now time for me to start paying, and I'm going to apply for a payment plan.  I was told by several lenders that I can apply for the income based repayment plan, which offers me the lowest actual payment, and that would be the best way to qualify.  Recently, though, I was told by a lender that since an income based repayment plan can change year to year that a bank isn't going to be able to use the actual payment and will instead use 1% of the loan to calculate my DTI.  She told me that I need to get a repayment plan that is amortized and stays constant for a bank to calculate the actual payment into my DTI.  This type of repayment plan is much higher for me to pay monthly, but much less than them calculating 1% of the balance, so it would help me qualify for the loan while at the same time costing me more money out of my pocket that I can't necessarily afford.  I was then told by someone that a solution to this problem is to apply for a repayment plan like they want, then after I get my mortgage loan finalized I can go back and re apply for the income based repayment plan at the lesser amount.  Before I apply for anything I want to make 100% sure that I'm doing the right thing and not screwing myself up.  First, is what these lenders told me true?  Second, if I were to get the higher payment plan that is fixed, can I then change it after closing on my house?  

[pgtackle2003]

Seems like you've discovered it depends on what each lender requires. Some will simply look on your credit report and calculate the payment listed there (whether it's IBR or fixed). Others will require confirmation of what type of payment plan you're on. I think the best bet as you mentioned is to go on a fixed payment plan during the mortgage process up until closing, then change to an IBR plan. I personally did this and had no issue.

Good Luck

[homeloanexpert]

Simple:

VA - Allows student loans in forbearance,  deferment IBR, etc.

FHA and USDA - Requires all student loans to includes loans under forbearance, deferment, IBR be calculated at 1% of the balance or fully amortized which ever is greater.

Conventional - What is listed as your payment, that's what we will be use unless you showing no payment due because you are in deferment or forbearance. Then you'll need to get into the lowest based repayment you can. This can be a little tricky sometimes, as some individual's student debts are so high and the income is so low, they want give you a payment.

Hope this helps!

[Anonymous]

My loans were also in deferment and with FHA they were using 1% so I had to go with a fixed plan that would amortize over 25 years. I have Nelnet so I chose the “Extended Standard Repayment” and was good to go. My lender asked for paperwork showing my loan would amortize over 25 years so I had to print out the payment schedule that shows the monthly amount for each loan group. Hope this helps.

[homeloanexpert]

You should be good to go!

[Anonymous]

Thank you for the reply. Just so I'm clear, you're saying that regardless if I'm on a payment plan or not USDA is going to use the 1% or the actual payment, whichever is higher? You're also saying that in most conventional loan situations they'll accept the IBR as long as it shows the payment on my credit report? What if I have a print out from them showing the payment amount?

[homeloanexpert]

Just so I'm clear, you're saying that regardless if I'm on a payment plan or not USDA is going to use the 1% or the actual payment, whichever is higher?

A: They will use the 1% rule

You're also saying that in most conventional loan situations they'll accept the IBR as long as it shows the payment on my credit report?

A: Yes, as long as it shows on your credit report

What if I have a print out from them showing the payment amount?

A: Has to show on your credit for Conv, for FHA or USDA doesn't matter, the UW will use the 1% rule.

[pgtackle2003]

Just recently closed on a FHA loan. The UW did not use the 1% rule. In fact they never even asked about what payment plan I was on, just used what my CR had. So I’m not sure if this is an actual FHA requirement or lender overlay.

[pgtackle2003]

Wanted to write and say that I was incorrect. I did the math and in fact 1% of my student loans is less than my current payment. So they did follow this rule and took the greater of the 2.