Mortgage loan approvals with deferred student loan payments

Student loans play a big role in people’s finances nowadays.  It is certainly true with mortgage loan approvals as well. CNN Money reported in an article that the average student loan debt for the class of 2012 is $29,400! Read the article here.  Student loan payments are typically included in calculating a borrower’s debt to income ratio.  What many borrowers may not know is that even though deferred student loans have no current payment, the payments often must still be counted in the debt ratio. So each loan type treats deferred student loans differently.

Deferred Student Loans VA Loans

Guess what?  VA loans are the only mortgage which recognizes the zero required payment under certain circumstances.  VA guidelines state the following:

Student loan payments which are deferred greater than 12 months after the mortgage closing date may be disregarded!

In order to exclude the student loan payments, proof of the deferment period is required.  Whether the student debt is for the borrower or co-signed for family, this exclusion of payments will help tremendously.  Learn student loan payment options at Navient or Sallie Mae.

Deferred Student Loans FHA & USDA Loans

So if you’re not eligible for a VA home loan, then deferred student loan payments will not be excluded.  Generally you should expect 1% of the outstanding balance to be used as a payment in a mortgage debt ratio.

FHA used to exclude deferred student loans.  But effective 9/14/2015, FHA no longer allowed this exclusion.

Sample debt ratio calculation if student loan payments are counted:

Mortgage payment sample: 1000

deferred student loans requirements for VA and FHA home loans

Student loan deferred payments requirements for VA and FHA home loans

Car Loan 400

Credit cards 100

Student loans 400

Total debt payments 1900

Sample monthly income 3500

Debt ratio 54.3%.  May be too high for approval

Sample debt ratio calculation if student loan payments are deferred over a year (VA loan):

Mortgage payment sample: 1000

Car Loan 400

Credit cards 100

Student loans 400 deferred over a year so not counted

Total debt payments 1500 (excludes $400 deferred payments)

Sample monthly income 3500

Debt ratio 42.9% Often will get approved depending on overall strength of file

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Author: Russell Smith

Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.