Agreed, Student loans kill more mortgage loans now more than any other borrower that has good credit than anything else. The mortgage giants, ie, (Fannie Mae, Freddie Mac, USDA, FHA, VA, RHS) use to be very friendly toward student loans and if they were deferred or in forbearance we counted no payment for it.
Now with the massive explosion in student loan debts since the recession of 2008, student loan debt has now passed a lot of forms of debts and it’s growing every day since the cut backs from state and local governments and the increase of education costs being shifted toward the school and borrower.
Student loan debts by 2020 will be the biggest debt out there, surpassing mortgage debt.
They have reigned the requirement to make it more difficult to borrow now due to the increasing debts and fear of the borrower walking away from the house. You cannot walk way from student loan debts but you can a home, so tht is there thinking I am told by the higher-ups.
Recent changes to Fannie Mae and Freddie Mac guidelines have made it easier for some, but not all with student loan debt to still qualify for home mortgage loans.
Both Fannie and Freddie have set underwriting guidelines that if lenders follow, makes the selling of loans to Fannie Mae and Freddie Mac much easier.
Student Loans. How do lenders calculate?
Student loans can be in active repayment, some sort of reduced repayment (which is typically an income based repayment), or completely deferred. While a student loan may be deferred for the next year or two, your mortgage loan is typically a 30-year loan. It only makes sense that lenders take current or future student loan payments into consideration when calculating debt ratios and affordability.
To avoid confusion, I’ll just talk about current guidelines for how lenders currently deal with your student loan debt for debt-to-income ratio purposes.
FHA loans must use the greater of 1% of the outstanding balance, or the payment listed on the credit report, unless you can document the payment is a fully amortizing payment. No income based repayment, graduated payments, or interest only payments allow
Fannie Mae Loans:
For deferred loans, must use 1% of the outstanding balance. For loans currently in repayment, use the payment listed on the credit report. If payment is listed as $0.00, but $0.00 is an active income based repayment, we must verify with the student loan company that $0.00 is the income based repayment.
Freddie Mac Loans:
For loans in repayment, use the amount listed on the credit report, or at least .50% (1/2%) of the outstanding balance, whichever is greater.
For deferred loans, must use the amount listed on the credit report, or 1% of the outstanding balance as reported on the credit report
USDA Rural Housing Loans:
For USDA loans, if the loan is deferred, income based payment, graduated payment, or interest only payment, must use the greater of .5% of the outstanding balance, or the amount listed on the credit report.
VA Home Loans:
For VA loans, if payment is deferred at least 12 months past the loan closing date, no payment need be listed.
If payment will begin within 12 months of closing, use the payment calculated based on:
a) 5% of the outstanding balance divided by 12
b) The payment listed on the credit report if the payment is higher than calculated under (a).
If payment on credit report is less than (a), a letter, dated within the last 60-days directly from the student loan company that reflects the actual loan terms and payment information is required to use the smaller payment.
These updated guidelines primarily help those currently in repayment, but with income based, graduated payment, and interest only payment student loans obtain conventional loans