Debt-to-income ratio for borrowers with student loans and getting approved for a USDA Loan in Kentucky.
For potential Rural Kentucky home buyers with student loans that are either in a deferred payment status or being paid back through an income based repayment program, the treatment of this liability needs to be considered. When student loan debts are not currently being paid upon, due to the loan applicant still being in school or recently graduating from school, the monthly liability will be calculated as 1% of the outstanding loan balance.
Example if you owe $100,000 in student loan debt the monthly payment will be $1,000. Also, if the student loan is being paid upon, but at a lesser amount than originally agreed, such as the payment being determined based on repayment ability (i.e. Income Based Repayment Plan), the monthly payment will be calculated the same as above (monthly liability = 1% of the outstanding loan balance).
This is the same as Kentucky FHA Loan new guidelines, in which student loans that are in deferment or under an income based repayment plan will have the monthly payment calculated at 1% of the outstanding loan balance.
If the student loan is being paid upon as originally agreed upon when the loan was first obtained, the monthly liability will be the amount specified on the credit report. Or if the student loans have been consolidated into a new loan, so long as the monthly payment is based on a fixed repayment schedule, that payment will be used when calculating the borrower's debt to income ratio.
Wondering how to factor existing student debt into your clients’ DTI ratios?
Keep this checklist handy, and you can skip study hall.
Greater of 1% of balance, monthly payment per the credit report or fully amortized documented payment.
Lender must include a monthly payment in the borrower’s recurring monthly debt obligation, using one of the options below to determine this amount:
If in repayment, use the greater of:
If in deferment or forbearance, use the greater of:
For student loan forgiveness, cancellation, discharge and employment-contingent repayment programs, payment may be excluded if:
RHS Student Loans
Effective immediately for all RHS loans, student loan calculations will be changed to the following
Omit if deferred>= 12 months. If not, greater of documented payment or payment at 5% rate on unpaid balance over 12 months.
Mortgage Loan Officer
Individual NMLS ID #57916
American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364
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