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BIG CHANGES: Student Loan Payments Impact On Loan Qualification
CONVENTIONAL LOAN UPDATE: Starting applications taken April 1, 2015, Fannie Mae will change how lenders factor student loan payments into the Debt-to-Income ratios to qualify borrowers for a conventional mortgage. For all student loans, regardless of their payment status, lenders will use the greater of 1% of the loan balance or the actual documented payment. How does this affect your clients? Let’s take a look at a couple of examples assuming a student loan balance of $30,000:
  • Example A: Your client pays $165 as documented on your credit report due to an extended payment plan with the loan servicer. Lenders must use $300 as your qualifying payment since 1% of the loan balance is greater than the current payment.
  • Example B: Your client pays $350 per month as evidenced on the credit report. The lender will use the $350 payment for qualifying since it’s greater than the 1% rule.
    • There is an exception to use the actual documented payment if the loan is fully amortized over the loan term and is not subject to payment adjustments.
  • Example C: Your client pays $200 as documented on the credit report and the loan is not subject to any payment adjustments, the lender can use the $200 as the qualifying payment.
Let’s take a further look into how this could affect your client’s financing.
Your client has a total gross income of $3800 Your client has a total gross income of $3800
Total debt per month: Total debt per month:
Credit card payment (from amounts owed) $200 Credit card payment (from amounts owed) $200
Car payment: $300 Car payment: $300
New Mortgage Payment: $1000 New Mortgage Payment: $1000
Student Loan Payment: $165 Student Loan Payment: $300
Total Monthly Debts: $1665 Total Monthly Debts: $1800
Debt-to-Income ratio: 43.8% = Loan Approval* Debt-to-Income ratio: 47% = Possible Loan Denial
*Disclaimer: Loan programs may change at any time with or without notice. Information deemed reliable but not guaranteed. Not a commitment to lend. Communication is intended for real estate professionals and not for the general public. Loan approval subject to all underwriting criteria
FHA LOAN UPDATE: Starting with case numbers ordered June 15, 2015 and after, all deferred loans, regardless of when they will commence will now be included in the qualifying ratios. The lender must use the actual monthly payment or if the actual payment is unknown, 2% of the outstanding balance will be used as the monthly payment. These are significant changes to the rules surrounding student loan payments, so let’s work together to get as many clients “off the fence” and into new homes before the rules take effect!

Jeff Branum
Atlantic Bay Mortgage Group
NMLS# 608484
NMLS # 72043
Contact Me

Jeff Branum Photo Jeff Branum
Atlantic Bay Mortgage Group
1492 C Lake Murray Blvd.
Columbia, SC 29212
Atlantic Bay Mortgage Group Logo
This letter is for information purposes only and is not an advertisement to extend customer credit as defined by Section 12 CFR 1026.2 Regulation Z. Program rates, terms and conditions are subject to change at any time. By refinancing the loan, the total finance charges may be higher over the life of the loan.

NMLS # 72043. ( 02/15

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1492 C Lake Murray Blvd. Columbia, SC 29212

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