One of the biggest factors many borrowers encounter when trying to get approved for a mortgage is their debt to income ratios. Especially when you have student debt.
That’s because often times when calculating the student loan payment for debt ratio purposes; your underwriter may request that the loan be fully amortized or use 1% of the balance for the calculation.
This frequently brings the DTI too high for borrowers.
However, when student loans are consolidated, we can structure the loan as a 360 month to improve the debt ratio. Then, later on, request the loan be placed into an income-based repayment post closing.
We do this so the borrower still keeps an affordable payment while satisfying the underwriter’s requirement.
Let’s take a quick example:
The borrower has $80k in student loans. Here is what qualifying payments would be under three different scenarios.
Scenario 1 1% of the balance = $800/month *
Scenario 2 Loan is consolidated into 360 months fully amortized = $400/month
Scenario 3 (Recommended) Income-based at 50k a year = $0 – $211/month
Scenario 1 is based on a 10 year payment and is the underwriter’s requirement when loans are deferred, or if they are not fully amortized.
***Loan forgiveness programs available for borrowers in public service. (i.e. Teachers, Police Officers, Postal Service, Military etc.)
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