Student loan DEBT stopping Mortgage approval

[dredee0]

So I sold my house in 2017. Made $2500 profit.  Since then, I had a few hiccups on my credit (car repo that I need to start a payment plan on the settled offer, few late payments) with 549, 529, and 472 scores, I'm back in the Education field with $63k as my salary. April 5th, the lender for the Teacher Next door program said lets rescore after you pay your credit cards off.  I did that by April 30th.  Now, after resubmitting zero balance letters, I get this information back:

 

"This borrower is not going to qualify regardless of credit scores because debt to income is to high.  She has 44 open tradelines most of which are deferred student loans.  FHA will be her only option with the credit scores  On an FHA Loan with a Purchase Price of $100,000 with a 3.5% Down Payment the DTI’s are 15.71 / 131.03% (what is this and where did these numbers come from?) so WAY too high to qualify for any loan amount.   She would have to pay debt on credit or consolidate some debt into one loan in order to qualify for anything.  Work on consolidating all the student loans. Also start closing out accounts that are not active. (I have none) Then overtime your credit will start building back up.  Having that many open tradlines can hurt your score. If you consolidate debt it may be a little higher payment but overall it will lower you monthly payments. For instance If I have a 3 $100 dollar monthly payments. I consolidate those 3 and now I have a $200 dollar payment it saves me $100 a month. You can still make those same payments but as far as your debt to income it will help.  Conventional allows you to use .5% but you need a 620 credit and DTI will still have to 45%. I would work on consolidating your loans into one loan and do an income based repayment plan."

 

What do I do? What options?  Yes, I have $435k in student loans, with all deferred, as I am completing my Ph.D.  If I submit the consoladation loan, yes, it would go down to a MUCH smaller number of loans, but still $435k, not to include the new loans for the last year of school.  As an educator, my payments are only for 120 months, then the rest is forgiven.  Can that help me?  I was an entrepreneur last year, so my AGI is $4350, which means I have to use my current salary to get an actual payment plan based on real income that might be $400/month- worth getting into a home.  I could also wait until January 2020 for NACA, as it wants me to wait for twelve months with no late payments. I have my current car note $500 and practically no credit card debt.  The house I want to buy is rentable starting June 1 for 1195/month.  I may ask the owner to consider holding a note, as refi may be easier.

 

Thanks for the help and suggestions.

Edited May 4, 2019 by dredee0

[cv91915]

You urgently need a long-term financial plan, and no more debt.  

 

A recent car repo isn't a hiccup, it's an obvious sign of enormously larger problems.  

 

Please don't take on more debt of any kind until you are re-oriented in a healthy direction.

 

 

[hegemony]

by 435k do you mean $435,000.00? if so, most of this must be private loans, right? no education is worth that. I hope you're not borrowing for the Ph.D.

[dredee0]

On 5/4/2019 at 8:23 AM, cv91915 said:

You urgently need a long-term financial plan, and no more debt.  

 

A recent car repo isn't a hiccup, it's an obvious sign of enormously larger problems.  

 

Please don't take on more debt of any kind until you are re-oriented in a healthy direction.

 

 

Thanks for your input.... but its the result of a bad relationship.  When only one of us works, things will be lost if that is not enough to pay bills. The worst part is the repo happened because after I made the last payment, I didnt reach out to the lender, although my payment was recurring on the last day of the month. However, the way rent rises here in atlanta. rent is almost DOUBLE what it would cost for a home. 

Edited May 5, 2019 by dredee0

[dredee0]

On 5/4/2019 at 11:23 AM, hegemony said:

by 435k do you mean $435,000.00? if so, most of this must be private loans, right? no education is worth that. I hope you're not borrowing for the Ph.D.

Not private loans.  Yes I am borrowing for the Ph.D.  As an educator, the majority of the balance will be forgiven and payments are based on income.  As a business owner, that works in my favor.

[hegemony]

I thought there was a cap on how much $$$ you can borrow with subsidized loans?

[tiggerlgh]

I thought there was a cap on how much $$$ you can borrow with subsidized loans?

There is. And that is a ton of debt for an educator.
Some has to be private. The max for grad/doctorate is around 135k.


Also I would never count 100% on the debt bring discharged. To much can change In Washington.

Either way OP you are s long way from buying a house.

[cv91915]

12 hours ago, dredee0 said:

Thanks for your input.... but its the result of a bad relationship.  When only one of us works, things will be lost if that is not enough to pay bills. The worst part is the repo happened because after I made the last payment, I didnt reach out to the lender, although my payment was recurring on the last day of the month. However, the way rent rises here in atlanta. rent is almost DOUBLE what it would cost for a home. 

You urgently need a long-term financial plan, and no more debt.  

 

A recent car repo isn't a hiccup, it's an obvious sign of enormously larger problems.  

 

Please don't take on more debt of any kind until you are re-oriented in a healthy direction.

[hegemony]

15 hours ago, tiggerlgh said:

There is. And that is a ton of debt for an educator.
Some has to be private. The max for grad/doctorate is around 135k.


Also I would never count 100% on the debt bring discharged. To much can change In Washington.

Either way OP you are s long way from buying a house.

thanks. the only way to Ph.D.IMHO is if someone is paying you for it.

[Melanie1978]

Dear DreDee0,

 

Please read what is happening to educators across the country, after paying the 120 payments they are not being given the loan forgiveness. It is a giant mess right now. 

 

Also, you need to consolidate  ONLY with a servicer who provides the program. NOT all of them do. I eventually went with Fedloans. They do offer the program. 

 

https://www.forbes.com/sites/robertfarrington/2019/06/04/why-youll-get-denied-for-student-loan-forgiveness/#678eb7315a1c

http://neatoday.org/2019/04/30/loan-forgiveness-for-teachers/ 

 

 

 

 

I hope everything works out for you.

 

M

[BringMeTheHorizon]

I also have student debt (& a PhD). I get where you're coming from. 

 

You may have to wait until you have a job where you earn enough income to qualify for a mortgage. Not all lenders will lend to those who are on the PSLF plan, but there are some who will. Basically, you will be paying around 15% of your income to your student loans until your loans come up for forgiveness in 10 years (unless politicians make a change--and if they do, let's hope it's in our favor). They will use the remaining income (minus other payments, e.g., car pmnt, credit card pmts) to calculate your debt to income ratio.

 

Once you have that stable payment history (about 6 months) and your Debt to Income ratio is right (depending on what you want to buy), you should be able to qualify for a mortgage. 

 

I would work towards keeping balances low, and paying off what you can until then. 

 

Good luck with your dissertation and your defense. And I hope you get into a new home soon!

[dredee0]

Hey everyone.  Just a quick update. I know its an old thread, as this is NEVER an easy process.  So, I got my final mortgage decline today.  I now know that in order for me to get a mortgage today, I've got to do far more than the bare minimum.  I had the middle mortgage FICO 670 vs 620.  I have sub 40% DTI when adjusted for my student loans, as they still do not report accurately. I think they report quarterly, not monthly, but I'll check.  I even had the numbers run with up to 20% down for a conventional mortgage.  None of that mattered, as i still did not get the final underwriting approval.  

Remember that the new scoring models do incorporate your OVERALL debt picture, of which, my student loans color against me.  Now I'm going to look for nonconforming loan lenders and programs.  Will create an entirely new thread with that, as I've already dealt with one, but at a 643.  Will also seek to break 700 middle score.

[centex]

Sorry about the decline, but with the current market, scores are necessarily going to need to be increased.  I suspect, especially with the current changes to the economy, that the days of getting a mortgage in the mid-600's will be long gone without putting a substantial down payment into the mix.  And with housing prices doing little but increasing at the moment, you don't want to get crappy terms on a large purchase. 

 

Conversely, this could be your glass half full moment...in the time it takes to see scores increase, we may see the inevitable increase in foreclosures once the mortgage stays are lifted and people have to pony up or get out.  If we see a repeat of 2007-2008 in that regard, you could see a wider array of homes at a lower price...

[cv91915]

I admire your tenacity.  You aren't there yet, but you'll get there. 

[IndyPoolPlayer]

On 7/15/2021 at 1:19 PM, centex said:

Conversely, this could be your glass half full moment...in the time it takes to see scores increase, we may see the inevitable increase in foreclosures once the mortgage stays are lifted and people have to pony up or get out.  If we see a repeat of 2007-2008 in that regard, you could see a wider array of homes at a lower price...

 

This ^^^^

 

The RE market is propped up by these stays. It will be a mad rush for evictions and foreclosures when the stays are lifted.

[ThomasRMorrison]

Look for Owner financing or private mortgage money. The former may or may not run a credit check and the latter option as well. I have used both successfully when I couldn't get the deal I wanted from conventional money sources.

[NathanielLopez]

I think a private mortgage is a great option.

[dredee0]

Thanks you all.  I know some replies are crazy and off-topic because there is so much you DONT know, but please do not assume anything.

I am NOT in PSLF.  I am in IBR. Total debt outside of student loans is only my car, credit cards, and the personal loan I got for surgery.  $500k IS a lot, but after payments (NOT PSLF), the balance is forgiven as income.  I'm a business owner too, but I'm only using W2 money.  I went back to the teacher program I went through last year AND I will submit to Justice, since the underwriters are giving me so much love.  Will update soon.  

Goal is to close BEFORE 2021 ends.  Also, I have a 3 year lease with a price lock.  if I dont close by month 18, I pay $179k vs $172k.  not the end of the world, but $1505 rent is high.

[centex]

19 hours ago, dredee0 said:

Thanks you all.  I know some replies are crazy and off-topic because there is so much you DONT know, but please do not assume anything.

I am NOT in PSLF.  I am in IBR. Total debt outside of student loans is only my car, credit cards, and the personal loan I got for surgery.  $500k IS a lot, but after payments (NOT PSLF), the balance is forgiven as income.  I'm a business owner too, but I'm only using W2 money.  I went back to the teacher program I went through last year AND I will submit to Justice, since the underwriters are giving me so much love.  Will update soon.  

Goal is to close BEFORE 2021 ends.  Also, I have a 3 year lease with a price lock.  if I dont close by month 18, I pay $179k vs $172k.  not the end of the world, but $1505 rent is high.

A mortgage lender in the CURRENT climate is NOT going to take any claim at face value that the loans will go away in a decade.  They are worried about protection of the collateralized asset TODAY.  They will ALSO have concerns about a claim that $1500 is 'high.' That tells them that you are not prepared with the reserves necessary to get into home ownership, which further places the asset at risk. 

 

What you claim as people 'assuming' anything is, instead, people pointing out things that you are ignoring that are related to the underwriting and funding processes...this isn't the early/mid 2000s's where money for mortgages is just being given without standards...they seem to have actually learned from 2008.  Not as much as they SHOULD have learned, but at least a little...

[Melanie1978]

They counted 1% of the student loan balance as the monthly payment.

 

In June 2021 the rules changed.

 

Now they will count 0.5% of the student loan balance as the payment unless you have a IBR or IDR payment posted on your credit report. If you do that will be the payment that is counted in your DTI ratio. 

[Melanie1978]

On 7/17/2021 at 7:35 AM, ThomasRMorrison said:

Look for Owner financing or private mortgage money. The former may or may not run a credit check and the latter option as well. I have used both successfully when I couldn't get the deal I wanted from conventional money sources.

 

Where did you find private mortgage options and how much did you have to put down?

 

[ThomasRMorrison]

On 11/6/2021 at 4:38 PM, Melanie1978 said:

 

Where did you find private mortgage options and how much did you have to put down?

 

 

Through a mortgage broker for one, the other came from an ad in the local paper. One was a refi and I showed 30% equity (value over debt), the other was a purchase and, if I recall, about the same downpayment. I passed on a 100% purchase loan, the interest rate was just too high.

[dredee0]

On 11/12/2021 at 2:30 PM, ThomasRMorrison said:

 

Through a mortgage broker for one, the other came from an ad in the local paper. One was a refi and I showed 30% equity (value over debt), the other was a purchase and, if I recall, about the same downpayment. I passed on a 100% purchase loan, the interest rate was just too high.

Thanks for sharing.  Once I get an appraisal, I'll be in a better position.  

[dredee0]

Quick update.... I found TWO lenders willing to do the work. One is Peoples Mortgage for their teacher program and another First Bank Mortgage.  The first is an FHA with PMI.  The second one, with a loan officer I know of from a far, is a conventional with NO PMI.  I had to submit a letter of explanation because it includes a $5000 grant.  He says he gets 50 inquiries a week lol.  I will update everyone next week.  No close possible before the end of the year without a miracle.

[dredee0]

Quick Update. Peoples Mortgage lied.  I have no problem sharing that I am W2. with 1099 income, and high student loan debt.  The 1099 income went against me, so now pay off $10k in debt... nah.  The website has grants and down payment assistance programs that just "happened" to not apply to me.  Also, I was charged $4k despite getting to the NEXT higher score bracket.

At least now the Federal student loan payment is there, the car I have is going back and the new payment will be lower, PLUS, Navient loans are being canceled. I hope mine are included in it.