Tag: Student loan

DEFERRED STUDENT LOANS AND DEBT RATIO CALCULATIONS Kentucky Rural Housing Loans and USDA Loans in KY

DEFERRED STUDENT LOANS AND DEBT RATIO CALCULATIONS  for Kentucky Rural Housing Loans and USDA Loans in KY

 

RHS Student Loan DTIs

 

Due to the variable nature of some student loan plans, RHS is standardizing the process of including them in the debt ratio. All student loans will now require documentation verifying the current payment due.

 

For student loans which are Conventional, Fixed Payment, and/or Deferred:

  • Account statements will be reviewed and fixed monthly payment will be used with no adjustments.
  • Deferred student loans not in repayment will use an estimated payment of 1% of the loan balance unless a documented fixed payment from the loan servicer can be provided.

 

For student loans with Income Based Repayment plans:

  • If the current payment is greater than $100, that payment can be used.
  • If the current payment is less than $100 and total loan balance is greater than $10,000, a minimum $100 payment must be included in the debt ratio.
  • If the current payment is less than $100 and total loan balance is less than $10,000, then the current payment may be used

 

Please note that documentation of an Income Based Repayment agreement must be provided. Payments of $0 are not eligible to be used in the debt ratio. Verifications are only valid for 120 days, 180 days for new constructions

 

DEFERRED STUDENT LOANS AND DEBT RATIO CALCULATIONS

. A 100% 30 year fixed interest rate loan with flexible credit and qualifying ratios along with other benefits, will open the door to a new market and new growth possibilities.

We look forward to a long and productive relationship this affordable housing product to the people of Kentucky and to a strong partnership in the Kentucky GRH Program.

For the USDA Rural Development Single Family Housing Guaranteed Loan Program, deferred student loans should be included in the debt ratio calculations for Guaranteed Loans regardless of the deferment period.

Rural Development RD Instruction 1980-D, section 1980.345(c)(1) states:

“Long term obligations include those obligations . . . with a remaining repayment period of more than 6 months and other shorter term debts that are considered to have a significant impact on repayment ability.”

Deferred student loans are long term obligations with remaining repayment periods of more than 6 months, and they must be included as part of the

applicant‟s recurring monthly debt obligations. If the credit report does not reflect a monthly payment due at the end of the deferment period, the lender may request a copy of the applicant‟s payment letter, or utilize the industry standard of estimating student loan payments as 1% of the loan balance. Therefore a deferred student loan balance of $12,000 should have a corresponding monthly payment of $120 if no estimated payment is verified by the lender.

This guidance applies to all manually

DEFERRED STUDENT LOANS AND DEBT RATIO CALCULATIONS Kentucky Rural Housing Loans and USDA Loans in KY

Kentucky Rural Housing Loans and USDA Guaranteed Loan Underwriting Issues

Kentucky Rural Housing Loans and USDA Guaranteed Loan Issues

Seller Concessions:
Seller concessions cannot be used to pay down buyer’s debt.

Deferred Student Loans and Debt Ratio Calculations:
Deferred student loans should be included in the debt ratio calculations regardless of the
deferment period. If the credit report does not indicate a monthly repayment amount, Lender may use the monthly payment amount provided by the loan servicer, or 1% of the loan balance reflected on the RMCR.

Risk Layering:
Refers to the existence of multiple levels of risk in an application such as marginal credit, high repayment ratios, extensive use of other credit, payment shock, etc. Lenders should be very cautious when evaluating applications with multiple risk levels.

Payment Shock:
Measured by dividing the new PITI by previous housing expenses minus 1. In cases where payment shock is 100% or higher, no additional risk layering should be allowed unless strong compensating factors are present.
Example:
New PITI = $1,500
Current Rent = $650
$1500 ÷ $650 = 2.30 ‐ 1= 1.30 or 130%
The payment shock in this example is above 100% and therefore is a risk factor.

Credit Waivers:
The lender approves a credit waiver and supplies all back up documentation used in the decision making process. Lender must document that the instances of unacceptable credit must have been temporary in nature and beyond the applicant’s control or the result of a justifiable dispute relative to defective goods or services. A lender need not require collection accounts to be paid in full if there are mitigating circumstances as described in RD Instruction 1980.345 (d)(3). Credit scores of 640 and above may eliminate the need for lender documentation of credit waivers.

Interest Rate Buydowns:
Temporary interest rate buydowns are permitted with prior RD approval. Underwriting
requirements for temporary interest rate buydowns include:
 The mortgage loan must be underwritten at the note rate.
 Buydown funds may come from the seller, lender, or third party.
 Buydown funds may not come from the borrower.
 The initial interest rate is temporarily reduced no more than 2% below the note rate
and increased by no more than 1% annually for no more than 2 years.