Hello my friends.
This week I wanted to clarify some of the updates we have been receiving about how to consider Student Loans. Most of this we have actually been applying for a while, but some, especially the FHA info is relatively new. All agree that deferred student loans will be counted against ratios and no longer overlooked based on when the payments come due.
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.
Lenders must include the greater of one percent of the outstanding loan balance or the verified fixed payment as reflected on the credit report.
Exception: Monthly payment amounts listed on the credit report, which are less than one percent of the outstanding balance may be used when evidence from the loan servicer is obtained indicating;
1)the applicant is on a fixed repayment plan not subject to change under the terms of the current agreement
2) and the monthly payment amount due.
Fixed payments have a monthly amount that is not subject to change through the fixed repayment time frame. Income Based Repayment (IBR) plans, graduated plans, adjustable rates, interest only and deferred plans are examples
of repayment plans that are subject to change and do not qualify for the exception. No additional documentation is required if a credit report is obtained and the lender can confirm the payment represented is a fixed payment as noted in this paragraph.
When a monthly payment on an installment debt is not reported on the credit report or is listed as deferred, the Seller must obtain documentation verifying the monthly payment amount included in the monthly debt payment-to-income ratio. If no monthly payment is reported on a student loan that is deferred or is in forbearance, and there is no documentation in the Mortgage file indicating the proposed monthly payment amount (e.g., the loan verification letter), 1% of the outstanding balance will be considered to be the monthly amount for qualifying purposes.
Examples of documentation of the required payment amount include:
■ A direct verification obtained from the creditor
■ A copy of the installment loan agreement obtained from the Borrower, or
■ If payments are currently deferred, the payment amount that will be required once the deferment or forbearance period has ended, as stated in a copy of a financial institution’s student loan certification or the installment loan agreement
For all student loans, whether deferred, in forbearance, or in repayment (not deferred), the lender must use the greater of the following to determine the monthly payment to be used as the borrower’s recurring monthly debt obligation:
∙ 1% of the outstanding balance; or
∙ the actual documented payment (documented in the credit report, in documentation obtained from the student loan lender, or in documentation supplied by the borrower).
If the payment currently being made cannot be documented or verified, 1% of the outstanding balance must be used.
Exception: If the actual documented payment is less than 1% of the outstanding balance and it will fully amortize the loan with no payment adjustments, the lender may use the lower, fully amortizing monthly payment to qualify the borrower
Questions on how all this relates to you or your children? Feel free to call/email me, Dennis, at 703.928.4428 email@example.com or Rob Suling at Presidential Bank Mortgage, 703-966-9960.