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Student Loan Debt to Income Ratio Preventing Refi

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Student Loan Debt to Income Ratio Preventing Refi

My scores are Experian 700, TransUnion 756, Experian 762. I have zero negatives for 10+, several long-term accounts, I have no clue why Experian is so low in comparison to the others.

 

I was just turned down as a co-borrower with my husband due to debt to income ratio. When I consolidated my student loans and finished school in 2012, I owed 52,000. They have blown up to 86,000 due to the fixed interest of 6.5%. I was on an income-based repayment plan, but I'm in deferment now due to being in grad school now. The finance company calculated my debt based on what my payment amount would be when I start paying loans at full cost, not what an income-based repayment would be. 

 

Now my husband has to refi without my income of $65,000 putting us at a higher rate or we "buy into" a lower rate. What kind of a racket is that? Anyway, does anyone have any advice on how to conquer the "High debt to income ratio" situation with student loans? This is the second time we've been burned by this. Although I have decent credit. It is rendered useless.  

2 REPLIES
Frequent Contributor

Re: Student Loan Debt to Income Ratio Preventing Refi

Can you come out of deferment for a semester while you apply for the home?
Message 2 of 3
Regular Contributor

Re: Student Loan Debt to Income Ratio Preventing Refi

Hi Socialnance and I wish to add my Welcome:

 

     You seem to have a few issues that are upsetting you – don’t worry. First things first. Find out why your EX scores are so different from your TU and EQ. There may be something on that report that is in error.

 

     Next, I want to congratulate you on striving for your MS/MA. Trust me, in the long run it will provide you far more economic power (assuming you don’t let it go to your head and screw up you credit) than anything you have done so far in your life.

 

     Now to the nitty-gritty. You said, “I was just turned down as a co-borrower with my husband due to debt to income ratio.” You go on to surmise that it was due to your student loan debt. Are you sure? Understand that government backed student loans have strict requirements (even though private lenders may underwrite and enforce them). There are two types of student loans: Fixed payment and fixed rate (the former being rarer). Don’t get confused because in both cases the amount you pay monthly is the same. What varies is the length of the payments. Fixed rate (the usual) says you will pay a set amount for a preset number of years and then the loan is PIF. Fixed payment says you pay a set amount of money each month while interest continues to accrue (and added into the total) until all PI is PIF. The former is like paying a bank, the latter is like paying Vinny the Bull his government sanctioned “vig.”

 

     Let’s assume your lender is one of the 98% of student loan lenders that uses fixed rate. Forget about income based repayment, that will probably be lower in your situation, but always use the worst case scenario. Full repayment will most likely cost you somewhere near $550 a month for 10 years on a $50K loan. Student deferment aside, and assuming you took out no new loans, this bill will appear on your CR (even if you don’t have to pay for it now).

 

     Now I can’t for the life of me come up with your numbers. You got your loan in 2012 (72 months ago) and it was $52K. At 6.5% APR the interest today would be $10,936.38 if you did not make one payment. That is only $63K. If you took all the money in year one (1st year of undergrad) that is 10 years. Once again you paid nothing; however, that still amounts to $18,853.94 accrued interest. That is only $71K. I’ve tried all methods and while I do not dispute your results, I suggest you get an amortized statement from your lender. There is no way you should owe $86K based upon the data you supplied.

 

     Having said that, it does not help your immediate situation. $86K should put you about $950 a month. I don’t know your personal situation, but you know you will have to repay this at some time. The way lenders look at it is, a second year grad student (with zero income and $86K debt) is a much higher risk than a grad school graduate with a $10K a month income (and the same debt).

 

     Okay Y, thanks for nothing. What to do? Well don’t worry. If these scores are your FICO mortgage scores, then you have a very healthy 756 middle score. With these scores and your nice “thick” file, a competent broker can work wonders and any LEOs you need to write can be easily explained to a UW.

 

     I suggest you go to the mortgage forum and scour the data there. https://ficoforums.myfico.com/t5/Mortgage-Loans/bd-p/loans Your problem may not be your DTI based upon your student loans as you think. Remember, with both of you on the loan, the middle score lenders use is the lower of the two. If your hubby’s middle score is lower than yours, you cannot help the lending situation. If his is higher, then you two are golden. And NEVER, NEVER, EVER is a “decent credit” score “rendered useless.”

 

Good Luck

 

Y

Current FICO 8 Scores:
EQ 794 (02/28/18), TU 801 (02/28/19), EX 820 (02/28/19)
EQ 794 (03/29/18), TU 799 (03/29/18), EX 812 (03/29/18)
EQ 789 (05/06/18), TU 797 (05/06/18), EX 809 (05/06/18)
EQ 797 (05/28/18), TU 806 (05/28/18), EX 814 (05/28/18)
EQ 758 (08/22/18), TU 731 (08/22/18), EX 759 (08/23/18)
Message 3 of 3