How do lenders look at student loan in forbearance?

[dianas]

I currently rent for $700 a month. The unit is being sold and I need to move. I'm having trouble finding anything in a decent area that is big enough for my family that is under $1200 a month. If I have to pay that much in rent, I would rather look into buying. I'm having trouble getting approved for that amount because of my high student loan payments. If I can get a forbearance for my loans, will they still count in my debts when applying for a loan? My car will be paid off in 18 months and that will give me the money to resume paying my loans.

[ShanetheMortgageMan]

If your student loans are deferred for 12 months from the closing date then they won't be included in your debt to income ratio if you use an FHA loan.  Where are you looking to buy?

[dianas]

I don't know if deferment and forbearance are the same thing? They would be deferred if I went back to school. Forbearance means they suspend payments for up to twelve months at a time due to financial hardship or any kind of temporary problem with making payments. Are the terms interchangeable?

Message Edited by dianas on 11-17-2008 07:59 PM

[BrianB_The_Loan_Professor]

1) If you are going for a conforming mortgage, one that conforms to either Fannie Mae or Freddie Mac guidelines, Federally Guaranteed Student Loans will count towards your debt ratio whether you are in repayment or in deferment. This is in the guidelines and while there may be conforming lenders or two that will not count them, they can not sell those loans as part of a Fannie Mae or Freddie Mac guaranteed MBS (Mortgage Backed Security). The lender would have to portfolio them.

2) If you are going for an FHA/VA/USDA Rural Development then as long as you can document that the loan(s) will be in deferment/forbearance for at least the next 12 months after closing they are not supposed to be counted towards debt ratio.

3) If you are going for a nonconforming/subprime mortgage each lender will have their own rules. Generally the rules will be in line with FHA. However, some lenders will require that 2 yrs deferment/forbearance be documented otherwise the loans will be counted.

[dianas]

From what I have read, forbearance can only be for up to 12 months. At the end of the 12 months you can apply for another forbearance, so I don't see how I could even show forbearance for 12 months after closing unless closing occurred on the exact date that forbearance begins. Has anyone done this?

Maybe I just need to go back to school half-time and get the deferment. I hadn't planned on doing that for at least a year, but now might be the time? It would get me closer to a pay increase, too.

Message Edited by dianas on 11-17-2008 08:04 PM

[ShanetheMortgageMan]

FYI, as of about a month or two ago USDA will include student loan payments in the debt ratio calculation regardless if they are deferred or not.

The trick is with the 12 month deferment is that it'll only say what month/year the payment starts in, not the exact date.  This usually gives a 2-4 week window where you can close on your transaction and your 1st payment will be due over 12 months from closing.

I never vote against making more money though, so if you think that would help you feel more comfortable with your mortgage payment I say go for it.

[Edje87]

My IBR is 12 months but did not fall on my closing date? What shall I do? My application is with the underwriter, the Salllie Mae letter indicated that my 12 months covered from 3-28-14 to 02-28-15. My closing date is March 31, 2014..what shall I do? I am praying to God that it will be great. 

[ShanetheMortgageMan]

USDA guidelines for IBR student loans are:

IBR payments of $0 are not eligible to be used in the debt ratio. The applicant must provide documentation of the IBR payment plan from the loan servicer. The following apply:
1. If the IBR payment is less than $100 and 1 percent of the total loan balance is more than $100, a minimum payment of $100 must be included in the debt ratios.
2. If the IBR payment is less than $100, and 1 percent of the total loan balance is less than $100, a minimum payment of 1% of the loan balance must be included in the debt ratios.
3. If the current IBR payment is over $100, use that payment amount in the debt ratios