FHA loans are a popular option for first-time home-buyers. Down payments can be as little as 3.5%.
The current calculation of deferred student loans has been dropped by half! Going from the old 2% rule to now 1% of the balance of the total sum of outstanding student loans.
The improvement in underwriting guideline, allows us to increase the purchase power for our buyers, due to the drop in estimated debt. This amount could play a factor in buying that dream home.
Fannie Mae and Freddie Mac are not far behind in making school loan calculations more common sense underwriting driven.
Change #1: Student loan payment calculation
Lenders may use the student loan payment as it appears on the credit report for qualification. Period. Before the change, lenders had to use 1% of the outstanding balance or the fully amortizing repayment amount.
The higher payment would put the buyer outside Debt To Income Ratio guidelines.
Change #2: Student debt paid by others
Just because a payment shows up on a mortgage applicant’s credit report does not mean the borrower pays it. Often, that obligation is taken care of by a parent or another party.
In these cases, Fannie Mae and Freddie Mac would omit the payment entirely. This will do wonders for a buyer’s DTI ratio, and in turn, the mortgage approval.
For our Veterans, VA loan is extremely beneficial, and has layered pro’s.
The Veteran or the spouse of one, provides written evidence that the student loan debt will be deferred at least 12 months beyond the date of closing, a monthly payment does not need to be considered, and is omitted from Debt To Income Ratio.
Again, meaning more buying power for the borrower! In a situation of non-deferment, there is a pretty complex calculation used to slice and dice the payment off the credit reporting number.
Our very knowledgeable staff is able to assist in pre-approving these much attention needed cases.