VA Loan, DTI and Student Loans

[Anonymous]

Need some help in regards my situation, there are multiple factors and I truly believe the LO we are working with is either screwing us or has no idea what he is doing. The LO gave us a pre-approval but then backed up saying our DTI is too high and said it is in the 80% range which i refuse to accept so i asked him about what income he was counting for us and he was wrong in that aspect, he was missing about $2k, then went ahead and asked him about what debts and some where doubled since my wife and i are on the loans together, when i asked him about how much he had for our student loan amount he seemed to not know how to give an answer and wanted to talk to his boss lastly i asked him what is an acceptable DTI for us to get pre-approved again and said 55% which is something i can make happen by paying down some debts. Based on my calculations our DTI is in 55% range with plenty of left over for residual income. The way i got to the DTI i got is i added all my debts plus all housing expenses to include tax and insurance  divided by my total gross income. The way i am getting my payment of the student loans is based on the payment plan that i will fall under but if the LO does it a different way it will affect my DTI. I guess my questions are, What is the process for a VA Loan to calculate the student loan? We are both currently in school and the deferral will be up to Dec 2019 for both of us. We are both going to grad school which we could put in deferral our loans again will this count against us?. In our credit report some of the loans do not have a minimum payment and some do. For those that dont have a minimum payment how is the lender supposed to calculate that ammount? I am in Massachusetts if that matters or makes a difference. Does anybody know any lenders that understand VA Loans and would work with a 55% DTI?

Thanks

[Anonymous]

Like you, I'm in the process of considering a VA loan. I had initially ruled it out because I have a huge student loan balance (law school). But my LO is convinced that I'll qualify and the interest rate is so much lower than conventional. For my situation, I am in repayment but it's income-based so the montly payment is much lower than normal. If my actual loan statements (not credit report) show that I am only required to pay the lower amount, then they can use that amount instead of the 5% rule.

To directly answer your question, my LO told me that if the payments showing on your credit report is less than 5% of the loan balance (in your case it would be since it's in deferral), then they have to calculate the payment as 5% of the loan divided by 12 months. For example, if you have 100k in student loans that are in deferment, the LO will calculate your monthly payment as 100,000*.05/12 = 416.66. 

[Mortgage-Specialist]

For VA loans only, if you can have your student loan company defer your payments for 12 months past estimated loan closing date, those payments will be counted as $0 and will not at all be counted at all toward debt ratio. Also your debt ratio can surpass 65% with the right lender.

Both debt ratio guidelines and student loan debt ratio guidelines may vary by lender and their odd overlays. These lenders are easy to identify and stay away from some of us who have been in the industry for so long but unfortunately for home buyers its trial and error. What bothers me most is that many like you are lead to believe you cant get a home loan but youre smart enough to question their guidelines and seek the proper assistance.

[VALoanMaster]

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@Anonymous wrote:

Need some help in regards my situation, there are multiple factors and I truly believe the LO we are working with is either screwing us or has no idea what he is doing. The LO gave us a pre-approval but then backed up saying our DTI is too high and said it is in the 80% range which i refuse to accept so i asked him about what income he was counting for us and he was wrong in that aspect, he was missing about $2k, then went ahead and asked him about what debts and some where doubled since my wife and i are on the loans together, when i asked him about how much he had for our student loan amount he seemed to not know how to give an answer and wanted to talk to his boss lastly i asked him what is an acceptable DTI for us to get pre-approved again and said 55% which is something i can make happen by paying down some debts. Based on my calculations our DTI is in 55% range with plenty of left over for residual income. The way i got to the DTI i got is i added all my debts plus all housing expenses to include tax and insurance  divided by my total gross income. The way i am getting my payment of the student loans is based on the payment plan that i will fall under but if the LO does it a different way it will affect my DTI. I guess my questions are, What is the process for a VA Loan to calculate the student loan? We are both currently in school and the deferral will be up to Dec 2019 for both of us. We are both going to grad school which we could put in deferral our loans again will this count against us?. In our credit report some of the loans do not have a minimum payment and some do. For those that dont have a minimum payment how is the lender supposed to calculate that ammount? I am in Massachusetts if that matters or makes a difference. Does anybody know any lenders that understand VA Loans and would work with a 55% DTI?

Thanks

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Hi NJCLQ87,

Unfortunately it does sound like you're working with an inexperienced loan officer.

The fact that the lender told you the max debt ratio is 55% let's you know that this is a lender overlay because VA does not have a max!

To be fair to the other lender, it is possible that they excluded some income because they had to. For example: If you earn over time, commissions or bonuses, you have to have a 2 year history of earning it in order for it to be included & it will be averaged out of the last 24 months. The same thing applies to 2nd jobs.

So with that said, how are you paid?

As far as your student loans go, here are the VA guidelines:

a. If the Veteran or other borrower provides written evidence that the student loan debt will be
deferred at least 12 months beyond the date of closing, a monthly payment does not need to be
considered.
b. If a student loan is in repayment or scheduled to begin within 12 months from the date of
VA loan closing, the lender must consider the anticipated monthly obligation in the loan
analysis and utilize the payment established in paragraph (1) or (2) below. Calculate each loan
at a rate of 5 percent of the outstanding balance divided by 12 months (example: $25,000
student loan balance x 5% = $1,250 divided by 12 months = $104.17 per month is the monthly
payment for debt ratio purposes).
(1) The lender must use the payment(s) reported on the credit report for each student loan(s) if
the reported payment is greater than the threshold payment calculation above.

(2) If the payment reported on the credit report is less than the threshold payment calculation
above, the loan file must contain a statement from the student loan servicer that reflects the
actual loan terms and payment information for each student loan(s). The statement(s) must be
dated within 60 days of VA loan closing and maybe an electronic copy from the student loan
servicer’s website or a printed statement provided by the student loan servicer. It is the
lender’s discretion as to whether the credit report should be supplemented with this information.

If your actual payment is lower than what is calculated using the formula above and/or lower than what is reported on your credit report, you'll send a statement from your servicer with the payment & terms for your student loans.

Does that make sense?

[Anonymous]

VALoanMaster thanks for chiming in. I'm also following this thread to make sure I have the correct info. Based on your explanation, it still seems that if you have a loan in deferment for less than 12 months, the 5% rule would have to apply. If loans are in deferment, I don't think they will have any payment terms listed. At less mine didn't. They were simply reported as "in-school deferral."

[VALoanMaster]

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@Anonymous wrote:

VALoanMaster thanks for chiming in. I'm also following this thread to make sure I have the correct info. Based on your explanation, it still seems that if you have a loan in deferment for less than 12 months, the 5% rule would have to apply. If loans are in deferment, I don't think they will have any payment terms listed. At less mine didn't. They were simply reported as "in-school deferral."

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Hi Orion1017,

That's correct, the 5% rule would apply to the scenario you mentioned.

[Mortgage-Specialist]

That is incorrect. If there is less than 12 months of student loan deferment then the debt ratio calculation used is 1% of the balance.

[VALoanMaster]

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@Mortgage-Specialist wrote:

That is incorrect. If there is less than 12 months of student loan deferment then the debt ratio calculation used is 1% of the balance.

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Sorry but you are mistaken. I posted the actual guidelines from VA so.....

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[Mortgage-Specialist]

My reference was an odd recent lender overlay who apparently does not go by the proper calculations. Thanks for the correction

[JSF1]

Hi VAloanMaster,

I have a question regarding deferrment. Exactly when does one need to retrieve the letter saying payments are deferred 12 months after closing. The reason I am asking is because, to my understanding, one would not know when the closing date is until you are completely approved and ready sign on the dotted line, right? That would mean they've already calculated what needs to be calculated including the loan amount, right? Are you able to submit the proof of deferrment AFTER a closing date has been established? What happens then, do they recalculate everything? If so, wouldn't this possibly allow for a different loan amount range?  I guess I'm just a little confused and need clarification as I will be purchasing using a VA loan and I have student loans.