Mortgage with Student Loans?

[Amber-Lissette]

Hi all. I am in the process of looking for a home, well, thinking about starting. I am worried about my student loans, which are deferred, preventing me from qualifying for anything. Here's my info:
Mortgage scores are 638, 639, 628
$454 car payment
About $100 total for cc's
Student loans $96,000. I do work for the government so they would be forgiven after 10 years of repayment, they are currently deferred as I'm in grad school.
Income right now is $48000 but will jump to $58000 in September of this year.
We are also given the option to work lots of OT, I was thinking of doing this to up my income and hopefully offset the 1% the mortgage lender may have to use when calculating student loan payments.

Any insight? Think the student loans would hold me back? Anyone know of any companies that use the actual repayment amount (I would go on income based repayment) instead of the 1%? Thanks!!

[Anonymous]

If you're in grad school your loans were already due for repayment so you have an opportunity. Instead of taking the deferment, you'll want to start paying them. This is critical on two fronts: the mortgage and the PSLF.
If you're in a job right now that qualifies, the loans you've already taken out could begin the countdown. When you apply at the end (the real application), they ask which loans. Yes, the loans you don't have yet will be delayed but they ones you have more can go for this first PSLF. The only way to have qualifying payments is to be on a standard plan (yeah right, lol!) or Income-driven repayment (IDR) plan such as REPAYE or IBR. Your loan will if course need to be direct loans. The second reason is that your instincts are correct, there are some loans that can use your monthly payment instead of the total amount owed. These are FHA loans. The terms have actually improved recently. If you get a traditional loan, you'll probably be out of luck. I can't speak on this, but there's a lot of threads on this very topic in the mortgage topic.
The decision between REPAYE and IBR can be a difficult one. There are many factors to take into account such as if you're married or think you think you will be during the course of your loan. REPAYE always looks at joint income (and joint federal loan debt). IBR will look at only yours but the trick is you have to file married filing separately. REPAYE's percentage is 10% vs IBR's 15%. However your also right below the cutoff for qualifying for IBR. If you choose REPAYE you probably can't change your mind. If you choose IBR now you'll be grandfathered in.
I don't think the student loans will hold you back from the loan. However I can see at a glance that your scores aren't solely the result of the loan balance. The score requirements for FHA loans are much higher but you might take a closer look and find ways you might be able to give it a bit of a boost.
Good luck and please don't hesitate to post a bunch of follow-up questions. I'm happy to help.

[Anonymous]

I forgot to mention how to do this. ☺️

To get around an in-school deferment it requires that you fill out a waiver. Now the waiver itself asks the dates, so unless you are very sure you want it, there is nothing wrong with applying for the waiver for a term. Once it expires, you can just continue with the deferment. Or you can prolong it, probably with a new waiver. You can get this for from your servicer by contacting them.
Once the deferment is in place, your payments will be due. If you need to undo the waiver, you can fill out a form for this to be reversed. You can do this only once in the life of the loan. That's why I say requesting shorter periods is better if you're not sure yet. The IDR plan will also prevent capitalization of interest.

[Amber-Lissette]

Thanks so much, I will definitely look into that!

[Anonymous]

Just found this. The amount they use for a deferred loan will be higher than 1%.
https://ficoforums.myfico.com/t5/Mortgage-Loans/FHA-changing-guidelines-on-deferred-student-loans-6-...

[Amber-Lissette]

Seems like I may have to go conventional...I was told they could use one half of a percent or even my my actual payment when on IBR.

[Anonymous]

If you just take the loans out of deferment, even temporarily, they will have to use your new, low IDR payment. I'm pretty sure from what I read that with your student debt vs your income it will be much harder to get a conventional loan.
FHA loans are actually pretty easy to get. There is also another trick. So you apply for your IDR, probably using the online application with the IRS populate. Now let's say there is a paycheck where you make less, for any reason. You can now voluntarily recertify early, using a paystub from within 90 days because you've have a "significant change of income." Doesn't matter that it's temporary. Now your payments will be recalculated for that lower amount. The new lower payment will be good for a whole new year. When your pay goes back up you are not required to recertify.
This is all in the small print of your IDR approval. This in turn will give you an even smaller monthly payment for your mortgage. 🙂
From my understanding there is also nothing stopping you from going back into deferment once the mortgage stuff is over and the deferment waiver is up.