Nervous About Husband's Student Loans

[Anonymous]

Me again...I know I've posted a couple of other questions but I've literally been online all day reading about how to handle my husband's old student loans which I can see on his TransUnion report like this:

Date Opened: 01/08/2007 Responsibility: Individual Account Account Type: Installment Account Loan Type: STUDENT LOAN
Balance: $0 Date Updated: 03/17/2014 High Balance: $37,496
Pay Status: >Account paid in Full; was a Charge-off< Terms: $0 per month Date Closed: 03/17/2014
Remarks: TRANSFERRED TO ANOTHER OFFICE Estimated month and year that this item will be removed: 02/2021

We are in a unique situation where we're getting a land/home loan to build a modular home on. My LO has issued  us a "prequal" letter after running a credit pull, and we're getting ready to put in an offer on the land this week. When I checked his free annual credit report, the above showed up on his CR. Every year the IRS takes his tax refund to pay it toward the loan. That part isn't a big deal for us financially, but now I am freaking out about this loan showing on his CR.

Since we haven't started the official loan app process yet, I am not sure what we should do? All I know is that the LO said they require 5% down on a land/home loan so I am assuming they aren't going the FHA route and they're likely going conventional. We make too much to qualify for USDA. Should my husband go ahead and start the "student loan rehab" process now or something similar? I just don't want to get denied or delayed when we can be proactive while we wait to apply. I also don't want to jump the gun if we don't have to in case this won't be a huge deal to the bank. We're using a local bank.

His Mid is around 629-645 from what we can see on our end currently. But I worry that the "charge off" status of a student loan will throw a wrench into this whole process. I am really trying to get all our ducks in a row ahead of time so we can be better prepared. Any and all advice is appreciated. 

[JVille]

So the loan was NOT paid off ? This is a Defaulted Student loan? If so you have a big problem.... what type of financing are you planning on getting?
Since your Husbands tax refunds are being garnished I assume this is a Federally Insured Student Loan, they NEVER go away and will haunt you to the grave. You are not eligible for any Government loans (FHA, VA, USDA or any other program that is similar). Husband is listed in the CAIVRS System.

[Anonymous]

Yes, we're aware it's a problem, which is why I came here to ask what the next best step is for him to take. I believe we will be applying for conventional since the LO asked for 5% down. It's a land/home single close with a $190K limit. FHA limits for these types of loans are much, much lower. We don't qualify for VA or USDA since we are not veterans and make too much to qual. for USDA.

So, with that said, again to anyone who reads the original post. Is he better off starting a rehab or income driven based payment now or should we wait for direction from the LO When we officially apply?

[LakeLife]

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@Anonymous wrote:

So, with that said, again to anyone who reads the original post. Is he better off starting a rehab or income driven based payment now or should we wait for direction from the LO When we officially apply?

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I think if I was in your shoes, I would be up front about this issue with the LO, if you haven't been already, and then ask for advice.  I'd hate to see you get to within a few weeks of closing only to have an underwriter throw a wrench into the entire thing.  

[Anonymous]

Thank you @RobertJ You're right, I think we need to just ask him directly. Honesty is the best policy and I'd rather know now than to go through the rest of the grueling process only to be disappointed later down the road...

[pgtackle2003]

I have rehabbed a studen loan before. Just so you're aware, they will ask for last years tax returns, look at your AGI and decide for you what you can pay. I had to pay just over $600/month for my rehab. After rehab was complete I went on a fixed payment plan of $340/month. So just be prepared if you do rehab, the payments can be quite high. Negotiated lower rehab payments is near impossible.

[Anonymous]

Yikes... silly question: Is rehab the same as income-driven repayment plans? It sounds the same but I just want to be sure. A $600 a month payment would be really rough to handle and would probably affect our DTI pretty strongly. If you don't mind me asking, what was the balance of your loan? 

[pgtackle2003]

In a sense yes they are the same since they're both based on your income but in reality no. I guess the difference would be in rehab you have no choice really but to pay what they tell you to for 8 months, unless you can prove you can't afford by some lengthy review process. In regular payments you can choose. IBR is generally for people who make very little money and really can't afford their loan payments.  So unless your husband has a very low salary the chances are you might not be approved for IBR (or in fact the payments would be higher than standard fixed payments).

[Anonymous]

Thank you for your insight. I've emailed our LO to see what he recommends. I have sinking feeling this could kill our homeownership goals for the time being. 

[Anonymous]

Cross-posted from my other post... my LO just emailed me this--

I am seeing a student loan with NJ High ED in collections.  Doesn’t reflect a balance or payments.  At this time, it will not have an impact on our ability to provide financing.  If something changes the way it is being reported, it could have an impact.

Unfortunately, we have no way of knowing how it will be reported going forward.  Last reporting on this was March 2014.