Student Loan Lates & Mortgage

[galaxysnow]

My partner and I are first-time homebuyers planning to purchase within the next 6–8 months. Overall, our savings for a down payment is strong (see below), but I’m concerned about how a few late payments on my part may affect our mortgage qualification and best rates.

In early 2025, I had an oversight when federal student loan forbearance ended and as a result two payments to Nelnet/Department of Education were reported late as follows:

January 2025: 90 days late

February 2025: 120 days late

Current credit profile:

• Her (5/4/2) scores: all scores above 740
• My (5/4/2 )scores:
  • Equifax (5): 675
  • TransUnion (4): 716
  • Experian (2): 640
  • Credit utilization: 14% across all bureaus

My current plan is to pay off three credit cards (~$4,000 total) and implement the AZEO strategy going forward.

Our profile:

• Combined income: ~$240,000
• Down payment: ~$120,000 (potentially including of closing costs)
• Target down payment: 20% down payment or close to to improve competitiveness and rates
• Debt:
  • Partner: $0
  • Me:
    • Student loans: $850/month
    • Auto loan: $370/month
    • Overall DTI is still relatively low

Questions:

• With AZEO and payoff of revolving balances, how much score movement is realistic? Is it reasonable to expect my tri-merge score to reach ~720 within the next 6 months?
• Given that the late payments will be 16+ months old at the time of qualification, how much do they typically diminish in impact after 12 months? Will these lates still materially affect rate tiers?
• Beyond AZEO and maintaining no lates or red-flags, what else can I do to improve my odds of securing near-best mortgage rates? Is a goodwill attempt to Nelnet even realistic?

Thank you!

[Thomas_Thumb]

Your biggest issue is the lates. The youngest needs to exceed 12 months for mortgage consideration. After that rate will be based on taking the lower of the two middle Fico mortgage scores - unless the selected lender has switched to Fico 10T or VS4.

The negative impact of 30 and even 60 day lates diminish a fair amount after 12 months. Unfortunately that is not the case with 90 or 120 day lates.

Your middle score of 675 is on EQ. That one is most sensitive to multiple cards with balances. Dropping from 3 to 1 reporting and reducing aggregate balance from $4k to under say, $200, may gain 5 to 15 points. The late aging may be worth another 10 points. So, end result is above 680 but likely not above 700.

If you have an AMEX charge card the Fico mortgage scores compute utilization based on current balance (CB) divided by high balance (HB). Best not to use that as your card reporting a balance.

[galaxysnow]

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@Thomas_Thumb wrote:

Your biggest issue is the lates. The youngest needs to exceed 12 months for mortgage consideration. After that rate will be based on taking the lower of the two middle Fico mortgage scores - unless the selected lender has switched to Fico 10T or VS4.

It never hurts to try good will letters even when likelihood of success is low. Really not much else you can do beyond AZE1 to boost score. Avoid opening any new accounts!

The negative impact of 30 and even 60 day lates diminish a fair amount after 12 months. Unfortunately that is not the case with 90 or 120 day lates.

Your middle score of 675 is on EQ. That one is most sensitive to multiple cards with balances. Dropping from 3 to 1 reporting and reducing aggregate balance from $4k to under say, $200, may gain 5 to 15 points. The late aging may be worth another 10 points. So, end result is above 680 but likely not above 700.

If you have an AMEX charge card the Fico mortgage scores compute utilization based on current balance (CB) divided by high balance (HB). Best not to use that as your card reporting a balance.

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Wow, that is bleak... a potential increase of only 20 points? I thought it would potentially be more than that

[TrapLine]

@Thomas_Thumb 

Wondering ...?

Over on the Mortgage thread and reading elsewhere, a new approach to mortgages utilizing factors other than FICO or Vantage Scores is in place. The minimum scores are a guide but not a mandatory. While I am sure the lates would be a hurt there might be a new tomorrow.

Shane the Mortgage Man also reported on the new approaches.

[Thomas_Thumb]

True, the minimum score requirement has been relaxed. Nonetheless, I suspect the 12 month late rule may still apply. That won't be in play here at loan time either way. I doubt ability to underwrite with a lower score will translate to reduced loan aprs since the rates are risk based (aside from changes in Fed rate). Profit rules after all.

[Thomas_Thumb]

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@galaxysnow wrote:

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@Thomas_Thumb wrote:

The negative impact of 30 and even 60 day lates diminish a fair amount after 12 months. Unfortunately that is not the case with 90 or 120 day lates.

Your middle score of 675 is on EQ. That one is most sensitive to multiple cards with balances. Dropping from 3 to 1 reporting and reducing aggregate balance from $4k to under say, $200, may gain 5 to 15 points. The late aging may be worth another 10 points. So, end result is above 680 but likely not above 700.

If you have an AMEX charge card the Fico mortgage scores compute utilization based on current balance (CB) divided by high balance (HB). Best not to use that as your card reporting a balance.

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Wow, that is bleak... a potential increase of only 20 points? I thought it would potentially be more than that

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One thing I forgot to consider - current age of youngest account. If under 12 months, an additional 15-20 point score boost may be possible when youngest account ages past 12 months. However, that boost may be specific to "clean" files and is more impactful on the newer Fico models.

Important notes:

The boost for AZE1 was assuming you currently have atleast 6 cards with a total credit limit of over $45k. That would put your aggregate utilization under 9% given a $4k balance. 

Edit add -

*** I just noticed you list current AG utilization at 14% (about $28.5k in TCL) so you will see a higher boost going to AZE1. If highest card UT is over 29% going under 9% could also garner some points. So, AZE1 might get you 20-25 points vs 5-15. The late aging still adds 10 points. Total boost could be 30-35 points. So, above 700 but not quite 720. However, if your youngest card is below 12 months and ages past 12, a further boost is possible. ***

Notes:

1. Aggregate utilization penalty becomes significant above 9%. Under 5% is best. 

2. Individual card utilization can impact score directly. It is best to stay under 9% reporting on any card with a balance. If highest individual card UT has exceeded 29%, that likely is hurting score independent of AG UT.

3. If current number of cards is 5 or less, 3 reporting balances will be hurting score more than if you had 6 or more cards. Fico considers % of cards with balances. With mortgage Fico, EQ in particular, over 50% of cards with balances can result in a significant penalty. 

- My EQ score 5 dropped from 809 to 765 going from 2 of 6 to 6 of 6 cards with small balances.  It rebounded to 809 a month later when 3 of 6 cards reported balances. (For ref. 4 of 6 => 796, 5 of 6 => 787).

Info on # of cards and individual card utilizations would be helpful in improving accuracy of score boost prediction.

[ShanetheMortgageMan]

The 20% down would offset the lower scores and late payments, so you shouldn't run into issues with approval, however interest rates match the credit score so you'll want to aim for at least a 680 (780 is the top tier).

I've seen people who were hit with late payments due to coming out of forbearance and not realizing it, re-establish payment plans, and after a few months the late payments were removed and credit scores recovered.  Did you enter into a new payment plan and did you ever have a discussion with them about removing the late payments?

[galaxysnow]

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@ShanetheMortgageMan wrote:

The 20% down would offset the lower scores and late payments, so you shouldn't run into issues with approval, however interest rates match the credit score so you'll want to aim for at least a 680 (780 is the top tier).

I've seen people who were hit with late payments due to coming out of forbearance and not realizing it, re-establish payment plans, and after a few months the late payments were removed and credit scores recovered.  Did you enter into a new payment plan and did you ever have a discussion with them about removing the late payments?

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Yes, unfortunately I've tried discussing this with Nelnet to no avail. This happened to a lot of student loan borrowers when forbearance ended for multiple reasons, and there's even a WSJ article about it from a Reddit thread of multiple people in the same situation. At this point my only option is to keep my utilization low and see what happens when I pass 12+ months from the lates being reported to see how that affects my score. I've seen some people report that they saw a significant jump but to be determined for me... 

[Thomas_Thumb]

You may want to read the "saturation technique" thread on good will strategy. It is on the forums here and can be found using the search function. The author, @BrutalBodyShots , is active on the foruns again and is open to private messaging.

*Edit*

Based on the below response, the saturation technique is not a viable option.

[Patient957]

If it's a federally backed student loan, Nelnet will not and cannot consider goodwill requests until the loan is PIF.  

The good news is once the loan has been PIF for 6 months, several folks, myself included, have received goodwill deletion of lates from Nelnet.  

@galaxysnow 

If your loan is PIF or nearing PIF, let me know and I can provide more info about how I did it.