People are moving to the Raleigh / Cary Metro area to go to one of the more than 20 Universities and Colleges we have in the area… and after graduation, they often stay in the Triangle because we have jobs. As folks are ready to put down roots and buy a home in Raleigh, they need to know how those Student Loans might affect them when they apply for a mortgage.
Whether it is a USDA Home Loan, an FHA Loan, or a VA Mortgage Loan – if you have existing student loans, first off they need to be current. If you are past due – call TODAY and see what can be done to create a payment plan. Once you’ve made 6 to 7 payments on the new plan – you will be closer to being able to buy a home in NC.
The USDA Loan Program is very popular among recent graduates, and a couple of reasons are because there’s not a down payment requirement and it is the simplest home loan to get with credit scores of 640 being used to qualify.
Because you don’t need to fork out a ton of cash to get into the USDA Home Loan Program it has gotten VERY popular over the last few years… and it’s our understanding that Johnston County, NC is one of the HIGHEST Counties in the Country when it comes to people who buy a house using the USDA Rural Development Loan!
Student loans come in two classes: deferred and not deferred. And one thing to keep in mind when looking at the USDA Home Loan Program is that it does treat student loans differently than the other mortgage programs. At first glance you would intuitively think that a deferred student loan would not be considered in qualifying for your new home loan.
The rule changed slightly with the publication of Administrative Notice 4543.
Now, any student loan whether it is in repayment or deferred must be included in the qualifying calculations.
The USDA Home Loan Program requires us to count a payment based upon the BALANCE of Income Based Repayment Deferred Student Loans, or the Student Loan will have to be “converted” to a fixed loan payment!
So, Even though the payment are deferred, USDA Home Loan Underwriters in NC will still consider this to be a long-term debt. This means that if you have 6 payments or more left on a student loan – we will calculate that payment in qualifying you for a mortgage loan.
We’ve also put together a guide for Recent College Graduates Looking for Their First Home.
The maximum total debt payment ratio for USDA is 41%. This means that your credit card payments, student loans, car payments (etc) plus your mortgage, taxes and insurance on the house should not represent more than 41% of your GROSS (before taxes) monthly income. We have seen a few cases where this was bent by an underwriter… but not often.
If you do have student loans that are in deferred status and plan on getting a USDA Loan, be sure you know exactly how much the monthly payment will be once the loan is back in repayment status. If you do not have that information, the USDA Underwriters will use 1% of the loan balance as the monthly payment.
Have more questions about USDA Home Loans and Deferred Student Payments? Call Us, or leave a comment below. To find out if you qualify for a USDA Home Loan in NC call Steve Thorne (919) 649-5058. We work with hundreds of families using this program each year here in NC!