Cash Out Refi Advice

[Anonymous]

I am attempting to do a cash out refinance on my primary residence.  I have a 704 middle score, 41 % DTI and owe 138k on the loan; the home is valued at 275k and Im attempting to take 50k out.  I have no “baddies,” but my score is dragged down by a good bit of utilization on credit cards.  Ive applied w/ 5-6 lenders so far and my experience has been less that stellar; some have not  gotten back to me yet and the one that has (“Lender A”)  got me hooked up w/ a condescending specialist.  One of my major issues is my student loans (six figures) which are currently in forbearance; in normal times Im paying income based payments which are lower than the 1% calculation that some lenders will do.  Lender A told me that I would have to take my student loans out of forbearance and have the payments owed show up on the credit report before they could count that amount.  I guess I’m confused because Ive heard of people who have just submitted paperwork (e.g., last student loan statement, a statement from student loan servicer) that says how much the payments would be if not in forbearance.  At this point, Im lookin for a good lender to work w/ me...any suggestions on where I should look?  Should I just wait until the forbearance expires and try again in October?? 

[Mortgage-Specialist]

If your credit report doesnt show a payment for your student loans, you would need to have to pull them out of forbearance in order to use the IBR payment. The student loan would need to show a payment on your credit report even if it's $0.

If you didn't want to go that route you'd have to hope your debt ratio would work when calculating 1/2 percent of your student loans balances 

Because the interest rates are expected to continue to increase I'm not sure Id postpone refinancing 

[VALoanMaster]

Hi @Anonymous ,  

Here are the Fannie Mae guidelines:

Student Loans

If a monthly student loan payment is provided on the credit report, the lender may use that amount for qualifying purposes. If the credit report does not reflect the correct monthly payment, the lender may use the monthly payment that is on the student loan documentation (the most recent student loan statement) to qualify the borrower.

If the credit report does not provide a monthly payment for the student loan, or if the credit report shows $0 as the monthly payment, the lender must determine the qualifying monthly payment using one of the options below.

• If the borrower is on an income-driven payment plan, the lender may obtain student loan documentation to verify the actual monthly payment is $0. The lender may then qualify the borrower with a $0 payment.

• For deferred loans or loans in forbearance, the lender may calculate

  • a payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment), or

  • a fully amortizing payment using the documented loan repayment terms.

So in order for a lender to use a zero payment, your student loan has to be out of forbearance and it has to be on an IBR plan if you're going Fannie Mae. 

If you want to leave your student loans in forbearance, you would need a statement showing the terms of the loan and that the monthly payment will amortize the loan (pay it off at the end of the term) in order to count that payment instead of 1% of the balance.

Freddie Mac is similar:

Student loans

Student loans in repayment, deferment or forbearance

For student loans in repayment, deferment or forbearance:

• If the monthly payment amount is greater than zero, use the monthly payment amount reported on the credit report or other file documentation, or
• If the monthly payment amount reported on the credit report is zero, use 0.5% of the outstanding loan balance, as reported on the credit report