Kentucky Rural Housing USDA Loan Financing - Student Loan Monthly Payment Calculations

Kentucky Rural Housing USDA Loan Financing - Student Loan Monthly Payment Calculations

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.






Student Loans and Qualfying for a Rural Housing Loan in Kentucky








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Wondering how to factor existing student debt into your clients’ DTI ratios?

Keep this checklist handy, and you can skip study hall.

FHA:

Greater of 1% of balance, monthly payment per the credit report or fully amortized documented payment.

Fannie Mae:

Lender must include a monthly payment in the borrower’s recurring monthly debt obligation, using one of the options below to determine this amount:
  1. 1% of the outstanding balance;
  2. the actual payment listed on the credit report;
  3. a calculated payment that will fully amortize the loan(s) based on the documented loan repayment terms.
  4. Loans that are deferred or in forbearance with no documentation require that 1% of the balance be considered when qualifying.
  5. If the borrower is on an income-driven payment plan, obtain student loan documentation to verify the actual monthly payment is $0 to qualify the borrower with a $0 payment.

Freddie Mac:

If in repayment, use the greater of:
  1. Monthly payment amount on the credit report;
  2. 0.5% of the original loan balance or outstanding balance per the credit report.
If in deferment or forbearance, use the greater of:
  1. Monthly payment on the credit report;
  2. 1.0% of the original loan balance or outstanding balance as report on the credit report.
For student loan forgiveness, cancellation, discharge and employment-contingent repayment programs, payment may be excluded if:
  1. Loan has fewer than 10 monthly payments remaining
  2. Monthly payment is deferred or in forbearance AND borrower currently meets requirements for student loan forgiveness, cancellation, discharge or employment-contigent repayment program.

USDA:

RHS Student Loans
 
Effective immediately for all RHS loans, student loan calculations will be changed to the following
  • Fixed Payment Loans: A permanent amortized, fixed payment may be used when it can be documented that the payment is fixed, the interest rate is fixed, and the repayment term is fixed.
  • Non-Fixed Payment Loans (i.e. deferred, income based, graduated, adjustable, etc.): The payment should be calculated as the greater of 0.5% of the loan balance or the actual payment reflected on the credit report. No additional documentation is required.

VA:

Omit if deferred>= 12 months.  If not, greater of documented payment or payment at 5% rate on unpaid balance over 12 months.

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916

American Mortgage Solutions, Inc.
10602 Timberwood Circle 
Louisville, KY 40223
Company NMLS ID #1364

click here for directions to our office

Text/call:      502-905-3708
fax:            502-327-9119
email:          kentuckyloan@gmail.com

https://www.mylouisvillekentuckymortgage.com/
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