Fannie Mae is one of the “Big Dawgs” when it comes to Conventional Mortgage Loan Underwriting Guidelines. If they say something will work, most lenders / banks will follow that lead and approve loans based upon the Fannie Mae Guidelines. Deferred Student Loans Conventional Mortgage Approval requirements recently changed… for the GOOD!
Fannie Mae changed the acceptable calculation for student loans when a payment cannot be verified. This means that folks who have students loans that show a zero payment (for instance an IBR Loan), we should count thee ZERO payment in the debt ratios.
Unlike USDA Home Loans, Fannie Mae’s guideline change, says that if a payment doesn’t show on the credit report (because you are in deferred status for instance) then we must find out what the payment is. If the payment is actually ZERO, we count ZERO.
For USDA and Freddie Mac Loans:
“In addition, for all student loans, regardless of their payment status, the lender must use the greater of the .5% calculation or the actual documented payment. An exception will be allowed to use the actual documented payment if it will fully amortize the loan over its term with no payment adjustments.”
PLEASE READ: If the Deferred Student loan is an IBR or PAYE Status, with payments that will change over time – Fannie Mae will count the payment reported, even if it’s ZERO and Freddie Mac will be required to consider .5% of the Balance.
Down Payment Requirements for Deferred Student Loans Conventional Mortgage
Conventional Loans typically require a 5% down payment. There’s a new program from Fannie Mae and Freddie Mac that allows a down payment of only 3%. This beats the socks off of the FHA Mortgage that requires a 3.5% down payment.
Additionally, there’s a Conventional mortgage program that offers a grant for the down payment. This program is NOT offered by all mortgage companies (shameless plug, another reason you should call us for a mortgage), however, those first time home buyers who qualify for a NCHFA Grant can receive up to 3%!
This Conventional NCHFA Preferred Option is even better than the one coming out in March! Buyers using the NCHFA Conventional option CURRENTLY get a 97% Mortgage loan (so if the house is selling at $100,000 you can borrow $97,000) financing with PMI payments that are half the normal PMI rates!
With some of the NCHFA programs, we can even pay part of your closing costs! To qualify you don’t even have to be a First Time Home Buyer!
NCHFA Grant program requirements for Deferred Student Loans Conventional Mortgage:
- must be buying a new or existing home
- must be a first-time or move-up buyer
- must be a home in North Carolina and occupy it within 60 days of closing
- the Applicant’s annual income can not exceed $89,500 (this is different from household income which we use for USDA Home Loans NC)
- must apply for the Deferred Student Loans Conventional Mortgage through a Participating Lender
- must be a legal resident of the United States, and
- must have a middle credit score of 640 or higher.
Ratio Requirements for Deferred Student Loans Conventional Mortgage
There’s really only one qualifying ratio for the Deferred Student Loans Conventional Mortgage. It’s the total debt ratio, meaning we add the whole house payment, taxes, insurance, PMI and all with your monthly debts. We are looking for a DTI (Debt to Income) ratio of 43.00000% of your GROSS monthly income (before taxes, etc are taken out).
We are going to consider any payments showing on the credit report, so cell phone bills, electric bills, health insurance and child care will not be counted. Car payments, credit cards, WILL be counted in your monthly payments to qualify.
Student Loans that are OUT of Deferment will be used to qualify, based upon the payment reported.
Fannie Mae’s guideline change, says that if a payment doesn’t show on the credit report (because you are in deferred status for instance) then we must count 1% of the balance of the loan in a payment. OR we can verify that it will be ZERO when it comes out of deferment, and count ZERO.
Let’s say you owe $3200 on one student loan, AND WE CAN NOT VERIFY WHAT THE PAYMENT WILL BE WHEN IT COMES OUT OF DEFERMENT… maybe your current payments show $0.00 per month owed. Wee can now count $0.00 if that is what is owed.
In the past, we would be required to take 1% of that balance or $32. EACH deferred student loan would be calculated this way. If you owe $40,000 in student loans, that could be as much as $400.
How big a deal is this? For us, it’s really not a big deal at all.
In all the time we’ve been doing mortgages we’ve ALWAYS been able to confirm what a student loan payment will be once a deferment ends, but we know that some banks will only look at what’s on the credit report, and will require the loan officer to approve you based upon the 1% ruling. On loans with a tight debt-income ratio, it could be the difference between an approval or a lack of financing.
“In addition, for all student loans, regardless of their payment status, the lender must use the greater of the 1% calculation or the actual documented payment.
Again (not trying to be overly simple here) but, if the Student loan is an IBR or PAYE loan, with payments that will change – Freddie Mac Conventional Lenders will be required to consider .5% of the Balance.
This is a CRITICAL difference between the Deferred Student Loans Conventional Mortgage, and a USDA Home Loan when there’s a deferred Student Loan. The USDA Home Loan NC program follows Freddie Mac Guidelines and count .5%.
The FHA Mortgage Deferred Student Loan Guidelines are changed earlier, and are now the most restrictive.
Additionally, if your Student Loan deferment (no matter what type of mortgage you are applying for) is not greater than a year, you may want to speak with your student loan creditors to see if you can consolidate the loans and extend the period over which you pay them back.
We’ve also seen people pay a deferred student loan in ADVANCE, which extended the deferment period. My point being, there are options, so that you can qualify for a mortgage while you have deferred student loans, CALL US, we work with TONS of people in NC who are in the exact same situation! These options potentially allow you to qualify for a mortgage while still counting the student loans against your debt ratio.
In the grand scheme of things, it’s nice to see Fannie Mae continue to loosen the reigns on some guidelines after such a long period of very constrictive approval criteria. These might be minor changes, but they’re changes in the right direction and hopefully a sign that more lenient (and more common sense) guideline changes are being considered, too.
Want to see the specific Requirements for A Home Loan with Student Loan Debt, and have more questions about Deferred Student Loans Conventional Mortgage?
Let us look at your unique situation, and what the Underwriters will think about your Student Loan Debt and Mortgage Loan Eligibility!