Guidelines for KY FHA, VA, USDA and VA Mortgage loans with Student Loans on A Credit Report:
Louisville Kentucky Mortgage Loans
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Kentucky First-Time Homebuyer Loan Programs for FHA, VA, KHC and USDA Mortgage Loans in Kentucky
A Kentucky Mortgage Loan Officer that has closed over 600 home loans specializing in Kentucky First Time Homebuyer Loans to include the following FHA, VA, USDA, Rural Housing, Down Payment Assistance Loan from Kentucky Housing Corp or KHC and the Fannie Mae Home Path HUD $100 Down Mortgage Program in Kentucky. Call/Text 502-905-3708 with your mortgage questions or email kentuckyloan@gmail.com I try to respond to all requests within minutes during regular business hours. NMLS# 57916 Joel Lobb Loan Originator, American Mortgage Solutions NMLS ID. 1364 Equal Housing Lender
Guidelines for KY FHA, VA, USDA and VA Mortgage loans with Student Loans on A Credit Report:
Louisville Kentucky Mortgage Loans
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conventional loan guidelines student loans
Kentucky Student loans can affect your ability to qualify for a Kentucky mortgage loan. In the chart below, we will point out the main qualifying guideline differences for each loan program that most people choose for their new home loan.
2. Kentucky FHA Loans: This is one of the most difficult programs to qualify for if have a large amount of student loan balances. FHA will use 1% of the outstanding balance which can make it difficult to qualify if you have a lower income and high student loan balances. The good thing about FHA loans is that they will do down to a much lower credit score than Fannie Mae on the credit score requirements, so keep this in mind. FHA will go down to a 580 credit score if you have 3.5 percent down payment and will allow for gifts for down payments.
3. Kentucky VA loans: VA can be easier to qualify for if you are a veteran or active duty soldier that has a VA COE. VA states that if the student loan debt is deferred for 12 months from the first new house payment, then the student loan payment does not have to be calculated into the borrower’s debt to income ratio, thus making it much easier to qualify for a mortgage payment if you have a lot of student loan debt.
If the student loans are currently in repayment, then you can use the actual repayment plan, or use 5% of the total outstanding balances, divide by 12 months. They will not allow for an IBR (income based repayment) payment, so keep this in mind.
Kentucky USDA Mortgage Loans: USDA will not allow for an IBR repayment plan payment when qualifying for a mortgage loan. They will take 1% of the outstanding loan balance or the fully amortized payment payment whichever is higher, to figure the qualifying house payment on USDA Mortgage loans debt to income ratio requirements.
Kentucky FHA Loan Guidelines for Student Loans:
Must be included in the borrower’s liabilities regardless of the payment type or
status. The payment amount must be either:
▪ The greater of:
· 1% of the outstanding balance on the loan or
· Monthly payment reported on the borrower’s credit report, or
▪ The servicer’s documented payment provided the payment will fully amortize
the loan over the repayment term period
Kentucky VA Mortgage Guidelines for Student Loans:
Deferred
A payment does not need to be included if written evidence supports that the
student loan debt will be deferred beyond 12 months of closing.
In Repayment
Include loans with payments starting within 12 months. Calculate threshold
payment as a rate of 5% of outstanding balance divided by 12 months. If credit
report payment is higher, use credit report payment. If current documentation
from student loan servicer reflects actual terms and payment for each loan,
the verified payments may be used even if less than the threshold payment
calculation.
Kentucky USDA Mortgage Guidelines For Student Loans
Fixed Payment
A permanent amortized, fixed payment is used when documentation supports fixed payment, interest and term.
Non-Fixed payment
Use 1% of the loan balance reflected on the credit report. Payment arrangements
that are deferred or non-fixed (Income Based Repayment (IBR), graduated, adjustable, interest only, etc.) may not be used.
Fannie
Loans in Repayment Period
▪ If provided, use the credit report payment
▪ If credit report is incorrect, obtain student loan documentation from the servicer
to verify the payment used for qualification
Income Driven Repayment Plan
Use the student loan documentation to verify the actual monthly payment. Borrower
may be qualified with a $0 payment if the documentation supports it.
Loans in Deferment or Forbearance
▪ A payment equal to 1% of the outstanding student loan balance (even if this
amount is lower than the actual fully amortizing payment) or
▪ A fully amortizing payment using the documented loan repayment terms
Freddie
Loans in Repayment
Use the greater of payment reported on credit report or .5% of the higher of original
or outstanding loan balance as shown on credit report.
Loans in Deferment or Forbearance
Use greater of payment reported on credit report or 1% of the higher of original or
current outstanding loan balance as shown on the credit report.
Loan Forgiveness
Payment may be excluded if file contains documentation that indicates:
▪ Monthly payment is deferred and/or in forbearance and full balance of the loan will be forgiven, canceled, discharged or will be paid if qualified for an employment-contingent repayment program and
▪ Borrower currently meets requirements for the student loan forgiveness/cancelation program
Obtain documentation from the student loan servicer to show the loan will be forgiven, canceled, discharged or that the borrower qualifies and is approved under an employment contingent repayment program that will extinguish the debt.
Fannie Mae Student Loan Solutions Frequently Asked Questions
Listed below are common questions about Fannie Mae’s Student Loan Solutions.
Q1. How does Fannie Mae anticipate Student Loan Solutions will benefit
borrowers?
Forty-four million Americans today have student loan debt; seven in 10 graduates
of public and nonprofit colleges in 2015 had student loan debt; and recent
graduates averaged $34,000 in student loan debt.*
The Student Loan Solutions referenced in the Announcement address
challenges and obstacles to homeownership due to a significant increase in
student loan debt over the past decade and provide access to credit for qualified
borrowers. The new solutions give homeowners the opportunity to pay off one or
more student loans with a lower cost mortgage refinance, allow borrowers to
exclude certain monthly obligations paid by others from debt-to-income (DTI)
ratio, and make it more likely for borrowers with student debt to qualify for a
mortgage loan by allowing lenders to accept student debt payments included on
credit reports.
Student Loan Cash-Out Refinance
Q2. Why did Fannie Mae decide to offer the Student Loan Cash-Out Refinance
option and how did they get comfortable from a risk perspective?
The Student Loan Cash-Out Refinance offers simpler eligibility terms and
reduced fees designed to provide additional options for borrowers with student
debt.
Q3. Can part of a student loan debt be paid off with the refinance?
No, borrowers may not partially pay down a student loan. Student loan(s) must
be paid in full with the transaction. No other debts can be paid except PACE
(Property Assessed Clean Energy) loans.
Q4. Are high-balance loans eligible?
Yes.
Q5. Are there any technical considerations for lenders and technology service
providers?
Yes
Q6. Why did Fannie Mae make this policy change to exclude debt paid by
others and how did they get comfortable from a risk perspective?
The policy change provides greater access to credit for creditworthy
borrowers who meet all other requirements. It also supports Fannie Mae’s
broader efforts to mitigate the widespread challenges of student debt.
From a risk perspective, we are still requiring 12 months of documentation
to verify that a party (other than the borrower) has been paying the
monthly payments
.
Q7. What evidence needs to be provided?
Lenders must obtain the most recent 12 months’ cancelled checks (or
bank statements evidencing 12 months payments) from the party paying
the debt. Additionally, lenders must ascertain that there is not a history of
delinquent payments for that debt.
Q8. If someone else pays only a portion of the non-mortgage debt, is all of the
non-mortgage debt excluded in the DTI ratio, or is it only the portion that is
paid by the third party?
In order for the debt to be excluded from the DTI ratio, the other party has
to pay the complete monthly obligation every month for a minimum of 12
months.
Q9. What about mortgage debt?
Fannie Mae’s policy regarding mortgage debt has not changed. Fannie
Mae will continue permitting exclusion of the mortgage monthly payment
from a borrower’s DTI ratio when the lender can provide a 12-month
history of satisfactory payment by another party, but only if the other party
is obligated on the mortgage debt.
Q10. Why is Fannie Mae making this student loan payment calculation change
and how did they get comfortable from a risk perspective?
Fannie Mae recognizes the operational complexity of their previous policy
and this change simplifies the process for lenders. For student loans
associated with an income-driven repayment (IDR) plan, the student loan
payment, as listed on the credit report, is the actual payment the borrower
is making and that payment should be used in qualifying. Any future
increases in the IDR payment will be tied to similar increases in the
student’s income, mitigating concerns that IDR payments may create
payment shock.
Q11. Some IDR plans allow a borrower’s payment to go to $0. In that case, how
is the student loan payment calculated?
As long as the lender can provide documentation showing the IDR payment is
$0, they can qualify the borrower with $0 for the monthly qualifying payment.
Q12. What if the credit report does not reflect the correct student loan monthly
payment and there is documentation in the file to support a different
monthly payment?
If a lender has student loan documentation in the file (i.e., most recent
student loan statement), evidencing a different monthly payment than the
credit report, the lender may use that alternative documentation to support
the correct monthly payment amount. Alternatively, lenders may obtain a
credit report supplement or update the credit report to reflect the correct
monthly payment amount.
Q13. Will Fannie Mae continue allowing lenders to manually calculate an
estimated student loan payment in cases where the repayment terms are
unknown?
Yes. If the repayment terms are unknown and lenders choose not to
estimate a 1% (of unpaid principal balance) payment, lenders may calculate
a payment that will fully amortize the loan(s) based on the current prevailing
student loan interest rate and the allowable repayment period shown in the
table below.
The “current prevailing student loan interest rate” can be found on a variety
of websites. For example, see U.S. Department of Education Federal
Student Aid in E-1-03, List of Contacts (01/31/2017). The table below
specifies the repayment period to be used when calculating a fully amortizing
payment.
Calculating a Student Loan Repayment
Total Outstanding Balance Of All Student Loans Payment period payback
Example: Calculating an
Amortizing Payment
$1 – $7,499 10 years
Balance: $17,500
$7,500 – $9,999 12 years
Repayment Period: 15 years
$10,000 – $19,999 15 years
Interest Rate: 4.29%
$20,000 – $39,999 20 years
Monthly Amortizing Payment:
$132.00
$40,000 – $59,999 25 years
$60,000 + 30 years
Note: The lender is responsible for determining that the payment on the credit report or
other documents provided by the student loan lender or borrower are fully amortizing
payments
.
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.