College was a blast and valuable (for the most part); however, if there’s one thing I wish I could have graduated without, it would be my student loan debt. I didn’t graduate with a very large debt, and, thankfully, it should be paid off very soon, but it’s still a monthly deduction from my bank account that I could do without.
Apparently, I’m not alone: According to a Washington Post article published in December 2013, 71% of the 2012 college graduates left school with student loan debt, and the average student loan debt was $29,400. As your Richmond VA mortgage advisor, this is a statistic I have no trouble believing. When I pull the credit of recent college graduates, I would say that I see student loan debt at least half of the time.
How Do Mortgage Lenders Treat Student Loan Debt?
Each loan program treats student loan debt differently. Some programs require that you count all of the payments into your debt-to-income ratio, while others will allow you to remove the payment from your calculation if the loan is deferred at least a year past your closing date. Here’s a brief overview:
Conventional and USDA
All student loan payments must be counted into your debt-to-income ratio, regardless of whether or not they are deferred.
FHA and VA
Student loan payments may be removed from your debt-to-income ratio if they are deferred a year past your closing date.
Student Loans and Your Credit Report
I find that many times when a student loan is deferred, important information will be missing from your credit report that your loan officer will require for your pre-approval. Here are two of the most common examples:
Missing Length of Time the Loan Will Be Deferred
Most of the time the month and year your student loan deferment period ends will be listed on your credit report. If you choose a VA or FHA loan and this date is at least one year past your closing date, that monthly payment can be excluded from your debt-to-income ratio, meaning you will qualify for a higher monthly mortgage payment.
Sometimes, the credit report will only say “deferred,” but it will not give a date. When this happens, your loan officer will ask you to contact your student loan servicer to obtain a letter with the deferment ending date. Then he or she will know if the loan payment will need to be calculated into your debt-to-income ratio.
Missing Student Loan Payment Amount
If the student loan is deferred, the ultimate monthly payment amount is sometimes missing from the credit report. Again, if your loan is conventional or USDA, your loan officer will ask you to reach out to your loan servicer to obtain documentation stating what the payment will be so that it can be added into your debt-to-income ratio.
If you have any questions about qualifying for a mortgage, please contact me. I live in Richmond VA, and I am licensed to work with borrowers in the entire state of Virginia. I can also refer you to other mortgage advisors I trust up and down the East Coast if you don’t live in Virginia.