DTI Calculation with SAVE Student Loan

[At_1254]

I'm currently on SAVE for student loans, but like everybody else I am in forbearance. I made the normal payments when it was in effect and it is reported on my credit report. Is anyone in the same position as me and got a mortgage or HELOC approved? Did they use your previous payment or 1% of the total student loan balance? I believe they typically use your current student loan payment for DTI, but it is a unique situation with SAVE. Obviously using the 1% loan balance rule will greatly increase my DTI and could impact approval. Thanks! 

[ShanetheMortgageMan]

The DTI calculation for student loans isn't always the same for all HELOC's, for loans in deferment or forbearance in my experience they'll either apply a monthly payment equal to .5% of 1% of the student loan balance (1% is more common to use).

Also, keep in that since HELOC's usually have a variable interest rate, they typically qualify the DTI at a monthly payment that is 2% over the start rate.   So if the fully indexed rate is Prime (which is currently at 7.500%) + a 1% margin, which would equal 8.500%, your DTI is calculated using a 10.500% interest rate.  There are some fixed rate HELOC's which qualify at the start rate though, since the rate will never change throughout the loan.  

[At_1254]

Thank you for the reply. So, you're saying that specifically for HELOC's, most lenders will use 0.5% or 1% of the student loan balance even if they are in an active repayment plan (let's say $200 per month for the past 2 years)? Just want to clarify, thanks! 

[ShanetheMortgageMan]

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@At_1254 wrote:

Thank you for the reply. So, you're saying that specifically for HELOC's, most lenders will use 0.5% or 1% of the student loan balance even if they are in an active repayment plan (let's say $200 per month for the past 2 years)? Just want to clarify, thanks! 

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You're welcome!  The .5% or 1% calculation is only applied if the loan is in deferment or forbearance.  If the student loan is on a payment plan, most HELOC programs typically use the actual monthly payment amount due.

[At_1254]

Got it, thank you!