Getting qualified for a mortgage loan so you can buy that house you really want can be a real *#%$! challenge. Here’s some insight that just may help you get prepared, compliments of Mike Wickham over at Caliber Home Loans (one of my preferred lenders btw).
You might have heard over the last 12 months or less that all loan programs have changed in regards to what lenders will use for a monthly payment when qualifying a borrower/s with student loans. Many borrower/s are on an income based repayment plan with no payment or very little. Most loans will not allow no payment or a payment that is not fully amortized. Most loans programs will require 1% of the balance or to document the fully amortized payment if less than 1%. This can really have a huge impact on the borrower/s ability to qualify. Please be aware that on Conventional loans here are the general guidelines from Fannie Mae and Freddie Mac:
- For all student loans, whether deferred, in forbearance, or in repayment (not deferred), must include a monthly payment in the borrower’s recurring monthly debt obligation when qualifying the borrower. One of the below options below must be used to determine the repayment amount:
- 1% of the outstanding balance; or
- the actual payment that will fully amortize the loan as documented in the credit report, in documentation obtained from the student loan lender, or in documentation supplied by the borrower.
- a calculated payment that will fully amortize the loan(s) based on the documented loan repayment terms; or
- if the repayment terms are unknown, a calculated 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.
- If no monthly payment is reported on a student loan that is deferred or is in forbearance, and there is no documentation in the loan 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.
We can use Fannie or Freddie and will evaluate each scenario to use the best route for the borrower/s.
Have a great day/week!
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