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I've just started the process of purchasing a home. I passed pre-qual with no problems. My concern is my student loans. I am currently in grad school and my student loans are all in deferment. How are the loans treated in loan approval/underwriting? Info below:
annual gross income: 65,000
monthly credit card payment: 200
current total student loans in deferment: 65,000
credit score: 750
down payment: 40,000
home price: 180,000
For conventional loans, they'll consider all of your student loans in your debt to income ratio no matter how long they're deferred.
FHA will ignore them if they're deferred at least 12 months from the date of closing and you have documentation to prove that.
For us, because my husband's still in school for his pharmacy doctorate, he has massive loans but is still deferred to 2013 as well, but we couldn't qualify for conventional anywhere. This includes Fannie Mae Homepath loans as well.
Thanks Enkiktd. How do they determine DTI of the student loans if you are not making payments yet? Is it a certain percentage of the total loan?
Payments, if not on the credit report, are obtained with a letter from the administrator of the student loans or by taking 2% of the balance as the payment. Online payment calculators have also been accepted, provided it identifies the account holder and the creditor.
Ask your lender to provide you with an FHA 15 year fixed rate payment. There would be no monthly mortgage insurance (provided your are at < 78% LTV, which you are) and you would only finance 1% added to your loan amount.....which would add about $6 to your payment. This way your student loans would not be considered a debt.
Thanks Enkiktd. How do they determine DTI of the student loans if you are not making payments yet? Is it a certain percentage of the total loan?
In most cases, you can register your loans with your servicer online and view the projected monthly payment. Mine are with Sallie Mae and they definitely show you the breakdown of any loans you have with them.
If it's not available online, you can call your servicer directly and see if they can give you a projected repayment schedule. Sometimes they can and sometimes they can't. The biggest issue we had with my husband's loans were the federal student loans, as all they would show is that they were deferred. They wouldn't show the repayment amount at all.
It wasn't really worth our time to get anything other than the deferral notices for an FHA loan because my husband is pursuing his pharmacy degree from a private school and that means $$$ in loans...even though he'll have good income when he graduates, effectively that means our conventional loan affordability is less than 0.
SmartMoney is correct; if you think you can put down 22%+ and afford the 15 year FHA mortgage payments, and provide all of the deferral documentation (this is easy), that's definitely the way to go.
Excellent feedback, thank you SmartMoney and Enkiktd. I'll definitely look into the FHA loans.
Hi Steve,
I don't think you need to go with an FHA loan to qualify for a mortgage.
Based on the information you've provided, you should qualify for a conventional loan and you wouldn't need to take on a 15 year payment to do it. Even if a lender uses 2% of your student loan balances for a monthly payment, your debt to income ratios are under the conforming requirements.
Look at it this way:
Do you want to take on a monthly payment of $1,002.19 plus taxes and insurance or $668.38 per month plus taxes and insurance?
The only way FHA would make sense is if you wanted to put a lot less money down.
Thanks nmb30. So even with 2% of my student loan debt as a payment I still fall under the dti conforming reqs? That's encouraging. I was concerned because every mortgage qualification calculator I could find, I was barely passing, in about 25% of them I couldn't afford the home price.
Just got off the phone with the mortgage broker. She says everything looks OK and is passing the docs to get pre-approved I guess? Anything I should look out for?
Thanks nmb30. So even with 2% of my student loan debt as a payment I still fall under the dti conforming reqs? That's encouraging. I was concerned because every mortgage qualification calculator I could find, I was barely passing, in about 25% of them I couldn't afford the home price.
Just got off the phone with the mortgage broker. She says everything looks OK and is passing the docs to get pre-approved I guess? Anything I should look out for?
You're welcome.
Keep an eye out for property taxes and insurance, I used a rough estimate of $140 per month for taxes and I think $60 or $70 per month for insurance. The interest rate is also going to impact the ratios so watch out for that.
Who's she "passing the docs" to for the pre-approval? That's something most loan officers take care of.
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