Construction Loan/Defaulted Student Loans

[ncreature]

I would like to know if anyone has successfully been able to get a construction loan with government student loans in default. I have two loans (total balance 3900) that are in default (not eligible for rehab). They report on my credit negatively as Closed-Collection-Charge-Off. I was making payments via bank draft before they were paused under the CARES ACT. I have contacted the loan servicer KHEAA and was told that all past payments and future payments will still report as I stated above. Advice Needed--Thank You  

[ChiknNuggz]

I myself have not applied for a construction losn before but i have heard alot and read alot of people who could not get approved with a default student loan.

[ShanetheMortgageMan]

Assuming these show up in CAIVRS, then if you are applying for government financing (VA, FHA, USDA) you'll need to resolve the debt in some manner before you'd be eligible.   All 3 types of government financing are usually available to qualify for when doing a construction-to-permanent financing mortgage, which is where the construction loan rolls over to the permanent loan afterwards without requiring a 2nd closing or re-qualifying.

Conventional financing doesn't check CAIVRS and doesn't differentiate student loan charge-offs/collections any from non-student loan charge-offs/collections, so you'd just be at the whim at whatever the guidelines are for the conventional construction loan.  There are construction-to-perm loans that are underwritten to Fannie Mae or Freddie Mac guidelines, which usually do not require charge-offs/collections to be paid (with the exception of Fannie Mae when financing second homes or investment properties)... so that type of construction loan might be your best bet.

[ncreature]

Good Morning,

Do you think I would stand a chance qualifying for the interest only part to start the construction and work on resolving the student loan issue before closing? (I have been told by the servicer that both loans qualify for the forgiveness program but I don't mind paying them in full if that would up my chances). Lastly, how can I find out if my loans are in CAVIRS.

Thank You Kindly

[IamWesty12]

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@ncreature wrote:

Good Morning,

Do you think I would stand a chance qualifying for the interest only part to start the construction and work on resolving the student loan issue before closing? (I have been told by the servicer that both loans qualify for the forgiveness program but I don't mind paying them in full if that would up my chances). Lastly, how can I find out if my loans are in CAVIRS.

Thank You Kindly

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@ncreature how do you know that your name has been on CAVIRS?  When I had originally applied for a FHA at the end of 2020 is only when I found out that my name was on that govt database (CAVIRS).  Up until then I had no idea that due to my defaulted student loans my name had been placed on.  At this point in 2020 there was zero way I was going to be able to pay off my SL defaulted balances ($24K) so the only option for me was to either seek other mortgage programs or consolidate/rehab for 9 months and once out of rehab then my name would be removed from CAVIRS).  Well I went on to being pre-approved for a conventional mortgage early 2021 but with the crazy housing market I had to dice finding a house.  Thankfully due to the Fresh Start inititiave and all the benefits from this program I started doing research and reading all I could on how I could possibly benefit.  Well lo and behold there was one article I read that said back in April 2022 Biden's administration had wiped off 8 million names of defaulted student loan borrowers from CAVIRS, enabling those folks to now be able to succesfully get ALL government back mortgages (if qualified I mean) as well as other benefits like access to more financial aid, etc.  I sent an email to the original loan officer that told me I was on CAVIRS, asking him if he was able to check my name through the database and see and he said immediately poof, I was no longer on the CAVIRS database and sent me a USDA 502 loan app.  Flash forward to today when I opened his latest email to find I am now officially approved and have my COE and will be home shopping 24/7.  So my advice if you already knew you were on CAVIRS and havent' rechecked, I would reach out to the loan folks and see if they can check.  Maybe just maybe you have been cleared from their database and can proceed with the loan of your preference.  Either way, best wishes and keep us posted!

[ShanetheMortgageMan]

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@ncreature wrote:

Good Morning,

Do you think I would stand a chance qualifying for the interest only part to start the construction and work on resolving the student loan issue before closing? (I have been told by the servicer that both loans qualify for the forgiveness program but I don't mind paying them in full if that would up my chances). Lastly, how can I find out if my loans are in CAVIRS.

I imagine with most construction loans that require you to refinance out of them after the home is completed would require defaulted student loans to be paid, but each program is different so you'll just need to call around and ask.

Any mortgage lender that offers government financing can check CAIVRS for you.  Just need your SS#.  As far as I'm aware there is no way for you to check CAIVRS yourself.  The US Department of Education is who enters in the information though, so there probably is some way you could contact them and inquire... that may rattle the cage however.