Student Loans and Mortgage

[cammielewis820]

I am 2 years post Chap 7 Bankruptcy, My scores are doing really well. 714-730 range. While I am still saving to purchase a home of my own, I have a substantial amount of student loans with dept of education. I have NEVER been late and they have been open accounts for over 11 years. While I am not concerned about "late payments" I am concerned with the size of the debt. I have made SOME payments, but I have been on income-driven payment plan which is why the amount I owe still is so large.

Can anyone tell me who has had this situation, when lenders look at Student Loan Debt is it looked at the same as Credit card debt? Will, it really impacts what I will be able to borrow?

I am a single woman, with a single income. No credit card debt, a car loan and these student loans. Any guidance will be appreciated.

Thank you!

[Faith_Hope]

Hi @cammielewis820 ! Same situation and currently under contract. My loans are roughly 70k, and I am also on an IBR plan. I took my loans out of COVID forbearance about 3-4 months prior to my app. My lender honored the IBR amount, which is also reflected on my credit report. For example, if your monthly repayment amount is $25, that's what the lender would use. 

I believe (don't quote me), as long as your payment is greater than 0, they will use the repayment amount. Otherwise, it's 0.5% or 1% of the balance-- which can significantly impact DTI for those of us with high student loan debt. Lenders look at your monthly/minimum payments on all debt. 

My advice is to maintain your IBR plan and continue paying on time. Be sure to file timely recertifications for your IBR. Best wishes! 

[cammielewis820]

Wow, thank you first of all! That was very insightful!

The thing is my IBR was zero $0, I didn't choose it, as  look at everything through the IRS. Then the national emergency forbearance. Are you saying, I should remove myself from that and go back to the IBR (which will still be $0 I am sure)??

[Faith_Hope]

So I called my loan servicing provider and asked to be removed from the COVID-forbearance and put my loan in repayment status. It took a few attempts and overrides but it was done.

I didn't link my AGI/income/dependent information from my taxes because circumstances can change at any point (higher/lower income, more dependents, etc.)

I called my loan servicing provider and had a rep assist me because they can put in different variables and give you an estimated amount. I'm sure you can opt-out of linking the income section from your prior year taxes on the online application--I think I have on the recertification. 

My IBR payment was also 0, so what I did was reduce my dependent amount by 1 on the application and it gave me a small payment. My goal was to get a small repayment-- anything greater than 0. Even if it's $25. 

Without my repayment amount, my lender would've used $350 as my monthly student loan payment-- that hurts your DTI if you have other debt like a car payment or credit cards.

So if you don't want your lender to use the 0.5% or 1% of your loan, your loan would have to be in repayment and the payment must be greater than 0.  I hope this helps. 

[cammielewis820]

YES! it helps. Any clue how long I need to have it above $0?

[ShanetheMortgageMan]

If you are qualifying for Fannie Mae financing then if the payment on the credit report is greater than $0 then that is the amount underwriting will use, no further questions asked.  If the payment is $0 on the credit report and it's due to being on an income based repayment plan, then that just needs to be documented and $0 will be used as the monthly payment.  If the student loan is in forbearance or deferred, then either 1% of the balance will be used as the monthly payment OR you can instead document the repayment terms and calculate a fully amortized payment would be and use that OR you can document the most recent income based repayment plan payment (with documentation).  https://selling-guide.fanniemae.com/Underwriting-Borrowers/Liability-Assessment/Monthly-Debt-Obligat... has complete guidelines.

If you are qualifying for Freddie Mac financing then if the monthly payment amount is greater than $0, then you can use that monthly payment amount (needs to be documented on a credit report or other documentation.  If the monthly payment is $0 then you use .5% of the student loan balance as the monthly payment.  https://my.sf.freddiemac.com/selling/student-loans has complete guidelines.

If you are qualifying for FHA financing then you can use the payment amount reported on the credit report or the actual documented payment, when the payment amount is above $0.  If the payment amount is $0 then you use .5% of the student loan balance as the monthly payment.  There is one exception to this, which is if student loan payment has been suspended in accordance with COVID-19 emergency relief (not just regular forbearance or deferment), then you may use the payment amount reported on the credit report or the actual documented payment prior to suspension, if that payment amount is above $0.  The 4000.1 handbook (official FHA guidelines) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh has complete guidelines (.pdf & .html versions available).