Student loans and DTI question

[Calidreaming]

On another thread, someone mentioned that some people had had success getting around the requirement that 1% of the total student loan balance, rather than the actual payment on an IBR plan by switching from an IBR plan to an extended standard payment to secure the mortgage and then switching back after closing on the home. 

Has anyone done this successfully?  If so, did you do this before you actually applied for the mortgage, or is this something that can be done sometime prior to entering into a contract on a house.  I am researching whether this strategy could work for me, but I rather not pay on student loans unnecesarrily for months and months before getting a contract on a house.

[Scupra]

I had to do something similar with DW's student loans. My LO didn't even make me make the changes, just wanted the screen showing what the planned payment would be.

[VALoanMaster]

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@Calidreaming wrote:

On another thread, someone mentioned that some people had had success getting around the requirement that 1% of the total student loan balance, rather than the actual payment on an IBR plan by switching from an IBR plan to an extended standard payment to secure the mortgage and then switching back after closing on the home. 

Has anyone done this successfully?  If so, did you do this before you actually applied for the mortgage, or is this something that can be done sometime prior to entering into a contract on a house.  I am researching whether this strategy could work for me, but I rather not pay on student loans unnecesarrily for months and months before getting a contract on a house.

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Hi Calidreaming,

If you qualify for a conevntional loan there is a way to do this that doesn't require going through all of that.

[Calidreaming]

Thanks so much Scupra and VALoanMaster!  I am so relieved that there should be an easier way of dealing with this than having to switch my payment plans back and forth.  I have about $115K in student loans so this recent rule change could have been a dealbreaker for our mortgage hopes.  It does look like we'll be going the conventional route. 

[Scupra]

Good luck!!!

[darkchild0813]

Try a local credit union. I had issues with my student loans and FHA. I was approved with a conventional 5/5 arm at my local credit union. I plan to refinance in a few years if interest raises too much.

[a1320]

Go with a conventional Freddie Mac or a portfolio loan. Certain credit unions should be able to use an Income Driven Repayment plan with no issue.

The problem that I see is that FHA loans are truly becoming subprime loans. Their recent 1% rule for student loans is just plain wrong. First, it's inconsistent with the express will of Congress and the Head of the Executive. Second, it is punitive. Third, it is arbitrary and capricious. I truly feel that HUD does not understand federal student loans or IDR programs. HUD seems obsessed with the penalizing borrowers under IDR programs - they want them to actually pay back their loans. Sorry HUD, but DoED sold me loans with specific contractual repayment plans (again - told by Congress and the President to do so), yet HUD refuses to honor these repayment plans. Even though payments will fluctuate they will not exceed 10% of my discretionary income. It may go up or down, but not matter what it will be 10% of my discretionary income (including when you get your mortgage). A better HUD rule would block out 10-15% of your gross income towards your DTI if you use any IDR program. The new HUD rule specific targets graduate borrowers. In my opinion, I'd rather lend to a recent law, medicine, pharmacist, or Ph.D with high federal student loan debt than to individuals with no college degree and nothing to fall back on.

Please write to you member of Congress and explain to them how this rule prevents you from using an FHA mortgage. In my opinion, someone needs to petition HUD for rulemaking and if they refuse to honor IDR programs an affected party needs to go to court. I'm concerned that this rule will spread to all mortgages.

[Anonymous]

Make sure if you write congress you use the correct name, IBR for income based repayment. I agree with the rest of it though.

[Anonymous]

I have payments that will fully amortize my loan over the 212 month period, but FHA still used a 1% for my DTI. Go figure.