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Old 01-18-2018, 06:52 AM
 
16 posts, read 6,632 times
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I have had three different mortgage lenders state the following in regards to school loans of those applying for mortgages...

'For monthly debt to income ratio, lenders (especially FHA, and generally all others) must take your actual school loan payment AND 1% of the total outstanding loans into account for monthly debt/payments.'

I am baffled and perplexed by this. Let me explain my situation (all income and debt amounts are on the most conservative side of actual amounts). I am about to graduate from Syracuse University w/ a B.S. in Civil Engineering, Fiancee is an audiologist, we have been renting for the past 6 years and are ready to build equity.

Myself:
Income: 50k/year - 4167/mo
School loans: ~80k -> 1% rule = 800/mo, AND actual repayment at 500/mo
Other loans/debts: 500/mo
D/I: (800+500+500)/(4167)=43.2%
Credit score: 690-720

Fiancee:
Income: 50k/year - 4167/mo
School loans: ~220k -> 1% rule = 2200/mo, AND actual repayment at 400/mo
Other loans/debts: 400/mo
D/I: (2200+400+400)/(4167)=72%
Credit score: 710-730

Anticipated Mortgage:
Mortgage: 110k-130k
Down Payment: 30k
Interest rate: ?
Time frame: 15-30 year

I believe FHA loans are no more than 35% debt to income ratio, other types of mortgages I believe go up to 42-45%?

In essence, lenders have said that this "new" rule has been killing the hopes of many recent graduates expecting to build equity. However, I find NO documentation on this rule, and feel that lenders are just covering their basis even though monthly payments will never be 1% of 220k. I can see 1% of 80k, that means 80k pay off in about 8-9 years which seems reasonable.

I presume it illegal to claim a spouse's income, and even more illegal to claim a not legal spouse's income?

Any lender advice, or opinions, or suggestions are welcomed.
I am in the central New York region and especially would love advise from a NY lender or someone w/ that experience.

Thank you

Last edited by Wasted Potential; 01-18-2018 at 07:29 AM..
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Old 01-18-2018, 10:52 AM
 
10,248 posts, read 6,449,755 times
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Your debt to income ratios are much higher, you forgot to factor in the price of the mortgage.

Your dti ratio includes your mortgage (or potential mortgage) payment including PITI, principal, interest, homeowner taxes and insurance plus any HOA fees if they apply plus your monthly minimum payment on debts such as loans, car loans and minimum credit card payments divided by income.

https://www.consumerfinance.gov/ask-...rtant-en-1791/


Also if applying jointly you calculate both incomes and debts to get one ratio.

Last edited by LifeIsGood01; 01-18-2018 at 11:17 AM..
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Old 01-18-2018, 11:08 AM
 
4,536 posts, read 11,524,543 times
Reputation: 3042
Quote:
Originally Posted by Wasted Potential View Post
I have had three different mortgage lenders state the following in regards to school loans of those applying for mortgages...

'For monthly debt to income ratio, lenders (especially FHA, and generally all others) must take your actual school loan payment AND 1% of the total outstanding loans into account for monthly debt/payments.'

I am baffled and perplexed by this. Let me explain my situation (all income and debt amounts are on the most conservative side of actual amounts). I am about to graduate from Syracuse University w/ a B.S. in Civil Engineering, Fiancee is an audiologist, we have been renting for the past 6 years and are ready to build equity.

Myself:
Income: 50k/year - 4167/mo
School loans: ~80k -> 1% rule = 800/mo, AND actual repayment at 500/mo
Other loans/debts: 500/mo
D/I: (800+500+500)/(4167)=43.2%
Credit score: 690-720

Fiancee:
Income: 50k/year - 4167/mo
School loans: ~220k -> 1% rule = 2200/mo, AND actual repayment at 400/mo
Other loans/debts: 400/mo
D/I: (2200+400+400)/(4167)=72%
Credit score: 710-730

Anticipated Mortgage:
Mortgage: 110k-130k
Down Payment: 30k
Interest rate: ?
Time frame: 15-30 year

I believe FHA loans are no more than 35% debt to income ratio, other types of mortgages I believe go up to 42-45%?

In essence, lenders have said that this "new" rule has been killing the hopes of many recent graduates expecting to build equity. However, I find NO documentation on this rule, and feel that lenders are just covering their basis even though monthly payments will never be 1% of 220k. I can see 1% of 80k, that means 80k pay off in about 8-9 years which seems reasonable.

I presume it illegal to claim a spouse's income, and even more illegal to claim a not legal spouse's income?

Any lender advice, or opinions, or suggestions are welcomed.
I am in the central New York region and especially would love advise from a NY lender or someone w/ that experience.

Thank you
Lenders use the student loan payment listed on the credit report. Student loans are some of the worst reporting loans as far as leaving out information like term and payment. When the credit report does not list a payment a lender can default to using 1% of the principal balance as the monthly payment. It is not 1% + the payment, it is just 1%. If the lender can confirm what the actual payment is/will be they can use that instead of the 1%.
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Old 01-18-2018, 11:15 AM
 
16 posts, read 6,632 times
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From this, is it possible for some loans to have a zero shown on the report, requiring a a 1% application even though it may be paid on while in default; therefore showing a payment AND 1%?

Just from here-say it seems I'll advised to consolidate all loans? It seems I am too uninformed to probably know what to look at other than a term and interest rate?
In consolidation the defer/grace period generally goes away, will this new loan owner (whatever lender consolidated it) must refresh the credit report and make debt apparent?
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Old 01-18-2018, 11:17 AM
 
Location: Austin
7,070 posts, read 16,848,493 times
Reputation: 9454
Quote:
Originally Posted by Wasted Potential View Post
I have had three different mortgage lenders state the following in regards to school loans of those applying for mortgages...

'For monthly debt to income ratio, lenders (especially FHA, and generally all others) must take your actual school loan payment AND 1% of the total outstanding loans into account for monthly debt/payments.'

I believe FHA loans are no more than 35% debt to income ratio, other types of mortgages I believe go up to 42-45%?
The lenders I work with have it as an either or. If your credit report states a monthly payback number, that's the number used. If you're in deferment, and there is no monthly payment noted, they use 1%.

FHA can go up over 56% DTI. Not sure weren't you're getting 35% from. FHA loans have the most lenient loan criteria as it's a program to help people with sticky situations and less money get into houses. You're even allowed to have a credit score down to 500 if you have 10% to put down, or 580 for the minimum 3.5% down.
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Old 01-18-2018, 11:22 AM
 
Location: Phoenix, AZ
1,207 posts, read 468,984 times
Reputation: 2772
Quote:
I have had three different mortgage lenders state the following in regards to school loans of those applying for mortgages...

'For monthly debt to income ratio, lenders (especially FHA, and generally all others) must take your actual school loan payment AND 1% of the total outstanding loans into account for monthly debt/payments.'

I think you need to go back to square one.


According to the HUD website it's OR not AND.


Quote:
Regardless of the payment status, the Mortgagee must use either:
  • the greater of:
    • 1 percent of the outstanding balance on the loan; or
    • the monthly payment reported on the Borrower's credit report; or
  • the actual documented payment, provided the payment will fully amortize the loan over its term.
See for yourself:


https://hudgov.prod.parature.com/lin...-s-liabilities


So you don't add the 1% to the actual payment, you use whichever is greater.


The 1% rule should make it easier to qualify. It used to be 2%.


Now, regardless of the "guidelines" you are going to have to make a more realistic analysis of your ability to buy a home.


I'm obviously not a lender but I have been a borrower on several occasions and I see a couple of issues.


If your gross monthly income is 4167 then your take home pay is likely $3000 or less and THAT is the figure you start with in determining how much of a loan payment you can handle. Otherwise you go belly up financially rather quickly and saying "The mortgage company said I qualify" isn't going to stop the foreclosure if you can't make the payments.


Start with 3000, subtract the 1% of your student loan balance and the other 500 you pay on your other balances and you get 1700 left for living expenses. Your current rent may include utilities but owning your own home won't so you'll need to allocate maybe 200 for utilities leaving 1500. Groceries and miscellaneous expenses and a reasonable cushion for the unexpected and I'd figure you can handle a mortgage payment of 1000 per month which means your P and I portion would be about 800.


You want to put 30,000 down and borrow 130,000? At 6% for 30 years that would just about result in 800 per month P and I or about 1000 per month mortgage payment.


Your credit score is mediocre but 30,000 down is almost 20% of a 160,000 purchase price. If you can make a down payment of at least 20% you'll avoid paying mortgage insurance premiums.


Quote:
I presume it illegal to claim a spouse's income, and even more illegal to claim a not legal spouse's income?

Nope, not illegal at all, as long as you are both going to be on the deed and on the loan.
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Old 01-18-2018, 11:35 AM
 
16 posts, read 6,632 times
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Quote:
Originally Posted by FalconheadWest View Post
The lenders I work with have it as an either or. If your credit report states a monthly payback number, that's the number used. If you're in deferment, and there is no monthly payment noted, they use 1%.
If I have multiple school loans (I believe some are different companies, some are Nelnet, and Sallie Mae); (I need to actually look at the loans and their rates, I have merely summed them), some of them may be paid on, while others show a "$0" payment, therefore, they may add my actual payment AND the 1% of the outstanding "$0" loans? I am just trying to understand some bank(s) logic.

Quote:
Originally Posted by adjusterjack View Post
Nope, not illegal at all, as long as you are both going to be on the deed and on the loan.
Being on the deed denotes she is a "cosigner," or that she needs to be seen as a "dependent" under me if I want the banks to see her income as mine? Also, if I claim her income, I need to claim her debt too (wishful thinking if not)?


I went to a local community college, and then to the university, so I am not sure if the current loan provider immediately must buyout the prior loans from the opposing company?
It is sad I do not know who all my loans are through, is there any simple way to determine this or is a credit check going to show me all and through who?


Under both of our incomes
Joint Application:
Income: 100k/yr = 8334/mo
School loans: ~80k+220k=300k -> 1% rule = 3000/mo, actual repayment based off income ~800/mo
Other loans/debts: 1000/mo
D/I: (3000+1000)/(8334)=48%
Credit score: I believe the calculation is not just an average, but a mean due to debt as well; therefore assume ~710

This still to me looks just as bad (just my opinion, obviously not fact) as applying by myself without utilizing her income

Last edited by Wasted Potential; 01-18-2018 at 11:57 AM..
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Old 01-18-2018, 12:29 PM
 
Location: Austin
7,070 posts, read 16,848,493 times
Reputation: 9454
Quote:
Originally Posted by Wasted Potential View Post
If I have multiple school loans (I believe some are different companies, some are Nelnet, and Sallie Mae); (I need to actually look at the loans and their rates, I have merely summed them), some of them may be paid on, while others show a "$0" payment, therefore, they may add my actual payment AND the 1% of the outstanding "$0" loans? I am just trying to understand some bank(s) logic.
Each loan will report as a separate debt. The ones that show a payment, the actual payment is used for repayment. The ones that don't show a payment will be calculated at 1%. That's how you're getting an "and", but it's not on each loan, it's still either payment or 1%.
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Old 01-18-2018, 12:40 PM
 
104 posts, read 67,944 times
Reputation: 116
Quote:
Originally Posted by Wasted Potential View Post
If I have multiple school loans (I believe some are different companies, some are Nelnet, and Sallie Mae); (I need to actually look at the loans and their rates, I have merely summed them), some of them may be paid on, while others show a "$0" payment, therefore, they may add my actual payment AND the 1% of the outstanding "$0" loans? I am just trying to understand some bank(s) logic.


Being on the deed denotes she is a "cosigner," or that she needs to be seen as a "dependent" under me if I want the banks to see her income as mine? Also, if I claim her income, I need to claim her debt too (wishful thinking if not)?


I went to a local community college, and then to the university, so I am not sure if the current loan provider immediately must buyout the prior loans from the opposing company?
It is sad I do not know who all my loans are through, is there any simple way to determine this or is a credit check going to show me all and through who?


Under both of our incomes
Joint Application:
Income: 100k/yr = 8334/mo
School loans: ~80k+220k=300k -> 1% rule = 3000/mo, actual repayment based off income ~800/mo
Other loans/debts: 1000/mo
D/I: (3000+1000)/(8334)=48%
Credit score: I believe the calculation is not just an average, but a mean due to debt as well; therefore assume ~710

This still to me looks just as bad (just my opinion, obviously not fact) as applying by myself without utilizing her income
First, I would find a good LO and sit down and have them go over everything with you and put together a plan.

As it sits now, with the numbers you provided, I don't see anyway you will get a home loan. You are at 48% DTI before you even add the projected mortgage payment. Student loans are tricky and how they figure the monthly payment. But here is what I can tell you:

FHA program: You need a 580 or higher FICA score to qualify for the 3.5% downpayment option. 500 to 579 FICA score requires 10% down (if you can even find a lender). DTI is up to 56% if you have a score above 640.

Also if you want to try and use FHA, check the local lending limits.
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Old 01-18-2018, 01:29 PM
 
16 posts, read 6,632 times
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After going through my college loans, I actually only owe ~57k now, but by 12-18 months when I actually apply for a mortgage it will probably be 65k. Therefore all of my estimates are relatively conservative so "hopefully" my level of safety factors implied on all my numbers will allow me to "squeak" into a mortgage.

I see FHA loans are easier to be approved for, but they most likely have a 1-2% higher rate compared to private lenders?

Within a mortgage, can one declare a mortgage of higher than the actual sale price (as long as the sale price is below their mortgage to value ratio)? Specifically, looking for if necessary improvements must be made, or is that better left to credit cards and personal loans?
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