One of the biggest factors many Loan Originators encounter when trying to get a borrower approved for a mortgage is their debt to income ratios. Especially when those borrowers 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 to 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.)

Have a question about credit improvement? Feel free to contact Alan Hayon at 800-965-6405. Alan Hayon is a FICO® Professional and President of C.A.G. Credit Services who and has been helping Loan Originators and borrowers improve their credit since 2011. Prior to moving into credit repair, Alan Hayon was also a Loan Originator since 2001 giving him a unique expertise in credit repair as it relates to mortgage lending.

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6 Responses

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