It seems kind of silly to have to ask the question, "is that a bedroom?" when you see what obviously looks like one. Our friend, you might just be surprised that what you see might NOT be a bedroom
If You Want A Mortgage Go To College
Yes, you read that headline right. Inspite of the studies on the cost of an education funded with student loans having bearing on being able to afford a mortgage as well, studies are now out that show that consumers with a college degree are more likely to seek a mortgage than other borrowers.
In the graphic below, the likelihood of a consumer with student loans and at least a bachelor's degree to get a mortgage vs. that of a consumer with no bachelor's degree is high. Student loan holders without at least a bachelor's degree are 32% less likely to be homeowners, while those with at least a bachelor's is 43% more likely.
Within this information, there is a caveat though. Student loan debt has increased substantially in recent years and its effects may not yet be evident in the homeownership numbers. Additionally, the majority of those surveyed by Fannie Mae had student loan debt that accounted for 10% or less of their monthly income. Others might not be so lucky.
If you currently have student loan debt, we would like you to know that all is not lost when it comes to qualifying for a mortgage; you can still get approved for a mortgage. The AMOUNT of student loans may be a factor however, of just how much you are able to borrow. Below, we've extracted some information for you from The Truth About Mortgage blog that will explain how several different mortgage lenders look at student loan debt:
Fannie and Freddie Student Loan Guidelines
When it comes to Fannie and Freddie (conforming loans), 1% of the outstanding balance is used to determine the monthly payment when the student loan is deferred. So if it’s a $25,000 student loan, $250 is added to your monthly liabilities. This used to be 2%, or $500, but Fannie determined that actual monthly payments were generally less than 2% of the total balance.
If the student loan is currently being paid back, the lender must use the actual monthly payment or 1% of the balance, whichever is greater, unless the payment is fully-amortized and not subject to any future adjustments. Lenders are also able to calculate a payment that will fully amortize the loan based on prevailing student loan interest rates, which may result in a lower monthly liability. Freddie Mac can be a bit more forgiving in accepting the actual monthly payment so you may want to consider lenders with Freddie approval if you’re cutting it close.
FHA Student Loan Guidelines
For the FHA, if the student loan is deferred and no payment is on your credit report, you will be on the hook for 1% of the total balance. So if the total is $50,000, the lender will factor in $500 per month into your DTI ratio. Obviously this can have a huge effect on what you can afford. The good news is the requirement used to be 2% of the outstanding balance if no payment was found. So in our example it was $1,000 per month. The bad news is that the FHA no longer allows the income-based repayment (IBR) amount to be used.
VA Student Loan Guidelines
When it comes to VA loans, student loan payments can be ignored if payments won’t begin for more than 12 months from loan closing. Otherwise you have to count the actual or anticipated monthly payment.
USDA Student Loan Guidelines
For USDA loans, the actual student loan payment can be used if it’s fixed (and has a fixed term) without future payment adjustments. If no payment is reported or it is deferred, 1% of the loan balance is used unless there is evidence that it’s a fixed payment.
If you’re close to maxing out with regard to DTI, an experienced mortgage broker or lender might be able to get you a mortgage using a mortgage that has a more forgiving policy with regard to student loan debt. So don’t simply give up until you exhaust all your options. A good rule of thumb might be to calculate your DTI using 1% of your student loan balance for the monthly payment, even if it turns out you can use a lower actual payment. That way you still qualify in the worst-case scenario. Also watch out for lender overlays that call for higher minimum monthly payments than the guidelines actually require.
If you have student loan debt and wonder if you could qualify for a home loan, call us! We have plenty of trusted lending partners who can help with your questions. Let's make an appointment to sit down and discuss your home buying plans and financial needs. Call us at (423) 433-6517or stop by our office inside Keller Williams Realty at 1033 Hamilton Place in Johnson City. Get schooled!
Holding a BS in Environmental Science, and MA in Education, real estate was not Shields Team Buyer Specialist Rayne Price's first career choice. It was only after encouragement from his wife and a cl....
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