Financing in Kansas City>Question Details

A_garcia, Home Buyer in Kansas City, KS

Are deferred student loans counted toward your debt to income ratio?

Asked by A_garcia, Kansas City, KS Thu Jul 7, 2011

My husband and I are both starting back to school this fall to pursue Doctorate and Specialist degree respectively. We are both education administrators and our incomes will increase substantially with these degrees. Our current students loans will be in deferment for 2.5 years as we finish. We are using some loan money to pay for these degrees but not all. We plan to buy a home next summer, will the deferred loans be counted in our debt to income ratio though we won't have to pay them for over a year after we purchase?

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Deferred student loans do not have their payments *excluded* with Fannie Mae or Freddie Mac loan programs (collectively these are called "conforming financing") - you either need to get something from the creditor stating how much the anticipated payment will be, or else lenders hit you with a monthly payment equal to 2% of the balance (which is a ton higher than what your actual payments would be). USDA loan programs also include deferred student loans in the debt ratio.

FHA & VA loans do not *include* the deferred student loans in your debt to income ratio as long as they'll be deferred for the first 12 months of the mortgage - this means you need something in writing from the creditor stating when the repayment date beings/deferment date ends. It can't be ambiguous like "6 months after graduation", etc.

If you were seeking out conforming financing, or USDA financing, then if you set your student loan payments up on an income-based repayment plan then that payment will be included in qualifying, and if your income isn't very high then the income-based payment should be relatively low compared to what the normal amount would be, and so that would help lower your debt to income ratio.
2 votes Thank Flag Link Thu Jul 7, 2011
Student Loans: Conventional/Fixed Payment

Student loans are long term debt obligations that must be
included in the debt ratio per section 1980.345(c)(1).
Student loans that are currently in repayment must have documentation to verify the
current payment due (e.g. letter from a loan services, online account verification's, or
other official written documentation). The credit report alone is not acceptable
documentation. Verification are valid for 120 days, 180 days for new construction.
A fixed loan payment will not adjust over the repayment term. The payment listed
on the documentation may be used for debt ratios.

√ √ √ Student Loans: Graduated Payments for USDA Loans

Graduated repayment plans typically start with low payments and then adjust every
12 months or more. Regardless of when payment adjustments occur, lenders must
utilize the highest payment documented on the repayment plan agreement in debt
ratios.

√ √ √ y Student Loans: Deferred for Ky USDA Loans

Deferred student loans that are not in repayment status may use an estimated
payment of 1% of the loan balance reflected on the credit report, or a verified fixed
payment provided by the loan servicer to document the payment that will be due
once deferment ends.

√ √ √ Student Loans: Income Based Repayment (IBR) for KY USDA Loans

IBR amounts are not fixed payments and may increase
annually.
IBR payments of $0 are not eligible to be used in the debt ratio. The applicant must
provide documentation of the IBR payment plan from the loan servicer. The
following apply:
1. If the IBR payment is less than $100 and 1 percent of the total loan balance
is more than $100, a minimum payment of $100 must be included in the
debt ratios.
2. If the IBR payment is less than $100, and 1 percent of the total loan
balance is less than $100, a minimum payment of 1% of the loan balance
must be included in the debt ratios.
3. If the current IBR payment is over $100, use that payment amount in the
debt ratios.

Joel Lobb (NMLS#57916)
Senior Loan Officer
502-905-3708 cell
502-813-2795 fax
jlobb@keyfinllc.com

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*
http://mylouisvillekentuckymortgage.com
0 votes Thank Flag Link Wed Jun 12, 2013
That's an excellent answer you have from Shane!
0 votes Thank Flag Link Thu Jul 7, 2011
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