Impact of Student Loans on Mortgage

[Anonymous]

I am hoping to get a pre-qualification for a mortgage in the next month or two but am concerned about a few things holding me back, one of them being my student loans. I graduated 6 years ago, so my loans are 6-10 years old and total about $45k.  They went into last summer and I completed the rehabilitation in May and they are now with a new servicer, but I still have a high utilization on them.  Now that they are with the new servicer, all of the interest that had accrued has now become principal, which leads me to my first question:  will my loans appear to be at 100% utilization because of this or will it be greater and the original loan amounts will still show along with an updated balance.  I will have the answer in a few weeks when my new servicer reports, but if anyone knows, I would like to know what to prepare myself for.  Will any of this have an impact on my chances of an approval?  So far two of the bureaus have deleted the old tradelines (hoping the new ones show up clean) which makes my reports look a lot better and my scores have improved.  I'm also waiting for a vacated judgement to come off of one last bureau.  Once all of that happens I will pay for my mortgage scores, but I know that the score isn't the only thing they look at.  I am working in a new field for the last ten months which may work against me as well and another potential hurdle is my pay is base + bonus with my bonus each month being close to 75% of my base pay.  On the bright side, I have a large amount of cash to put down (could actually just pay cash).  I've been in the same apartment for the last six years and feel like the walls are starting to close in on me, but rent in a bigger apartment would be more expensive than a mortgage, so I think it makes sense for me to buy.  I'm just feeling anxious to move on and get a fresh start and don't want to wait!  I have an awesome house I am in love with (from the pictures) and don't want to check it out in person until I have my pre-qualification in hand.  

[Anonymous]

I resolved my student loan default through consolidation earlier this year in preparation for a mortgage. When the new loan reported, it came in as 100% utilization, and I lost between 11-13 points across the board when the new loan reported. My loans are currently deferred, so the comments section says "student loan payment deferred". 

If you're going FHA, they have to use a monthly payment amount equal to 1% of the loan balance because they are interested in payments that will amoritize the loan. Fannie Mae is changing the rules for conventional loans. Beginning next month, if you're in an income-based repayment and that amount is what's reported on your credit amount, they can use that when calculating DTI. 

If you have a good chunk of cash, it sounds like you're in a better position as you can use that for the down payment to make your loan amount lower. That will put your DTI calculcations in a better position. 

[Anonymous]

Would the 100% utilization be an issue with getting an approval?  

[Anonymous]

I don't think so. If your DTI calculations are okay, then I don't see what the problem is. If you're balance is $45K, then you have to add in $450 to your monthly payment amount. If doing that puts you over the DTI qualifications, then it would mean you find a cheaper house or pay it down. 

[VALoanMaster]

The utilization will not have any bearing on your loan approval at all, just the monthly payment. If you have documents showing that the judgment has been vacated you don't need to wait until it drops off your credit report to apply for your preapproval.

[Anonymous]

Do I need to wait until the loans with the new servicer report?  Especially since I am not sure how they will appear (clean tradelines or showing bad payment history).  I would hate to have a pre-approval based on my current reports and then have them show up with bad history lowering my score and not actually be able to get the loan.

[VALoanMaster]

Since you refinanced your loans you start out with a clean slate so I don't think you have to worry about anything.

[Anonymous]

Do your reports show all the old loans as closed with a $0 balance?

If so, I would advise waiting a bit, since you currently have no open loans on your report, and this can affect your score.  Additionally, the installment utilization does affect the EX mortgage score, though not TU/EQ.

While you are waiting you can do other things to optimize your mortgage scores -- e.g. getting all your credit cards reporting at $0 except one (with the remaining card showing a small balance, like $20).

[Anonymous]

They did show closed/transferred with a $0 balance, but the tradelines are actually completely gone on 2/3 of my reports.  I disputed them and they came off and am waiting for the third CRA to finish.  You are correct that I do not have any open loans right now, which is why I was thinking I should wait until the new ones report.  At that point, I should have 11 6-10 year old loans with clean payment history showing, which I think will make a huge difference.  I'm just getting impatient with the reporting (was told it is usually 2-3 months after purchase of new loans).  My credit cards are in pretty good shape right now 3/6 reporting with a $0 balance, now that it is a new month I can make a payment on one of the others (only allowed to make four payments per month online) and pay the whopping $8 to get it to a $0 balance.  The other two will be paid down/off next week when I get my bonus check.  I've been working on all of this for a few months, but didn't want to pay to see my mortgage scores knowing that they would soon be changing (hopefully) drastically.

[Anonymous]

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@Anonymous wrote:

My credit cards are in pretty good shape right now 3/6 reporting with a $0 balance.... The other two will be paid down/off next week when I get my bonus check. 

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Just be sure not to pay off the other two entirely.  Actually paying them to $0 is fine, as long as you then promptly make a charge on one of them).  You want one card reporting a small balance (e.g. $10-20) with all cards at $0.

I like your plan of getting your reports in real pretty shape before moving ahead with homebuying plans or pulling mortgage scores.  That's ideal, as long as it doesn't create a problem for you in some other way (e.g. my dream house just became available and I want to make an offer tomorrow).

Do you have free tools for checking all three reports (TU, EQ, and EX)?  When a person is eagerly watching reports, those are a nice thing to have.