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How to Qualify for a Rural Housing Loan in Kentucky with Student Loans.
For potential home buyers with student loans that are either in a deferred payment status or being paid back through an income based or graduated 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 based on the lower of 1/2 of 1% of the outstanding loan balance or the monthly payment listed on the credit report.
Example if you owe $100,000 in student loan debt the monthly payment will be $500. 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 = 1/2 of 1% of the outstanding loan balance).
This offers a significant improvement compared to the FHA Loan 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.
Kentucky USDA Rural Housing Guidelines for Student Loans:
Kentucky Student loans that are currently in repayment must have documentation to verify the current payment due (e.g. letter from a loan servicer, online account verifications, or other official written documentation). The credit report alone is not acceptable documentation. Verifications are valid for 120 days, 180 days for new construction. A fixed loan payment will not adjust over the repayment term. The payment listed on the documentation may be used for debt ratios.
Graduated repayment plans typically start with low payments and then adjust every 12 months or more. Regardless of when payment adjustments occur, lenders must utilize the highest payment documented on the repayment plan agreement in debt ratios.
Deferred student loans that are not in repayment status may use an estimated payment of 1% of the loan balance reflected on the credit report, or a verified fixed payment provided by the loan servicer to document the payment that will be due once deferment ends.
Kentucky Student loans with Income Based Repayment (IBR) plans of $0 are not eligible to be used in the debt ratio. The borrower must provide documentation of the IBR payment plan from the loan servicer. The following apply:
If the IBR payment is less than $100 and 1 percent of the total loan balance is more than $100, a minimum payment of $100 must be included in the debt ratios.
If the IBR payment is less than $100 and 1 percent of the total loan balance is less than $100, a minimum payment of 1% of the loan balance must be included in the debt ratios.
If the current IBR payment is over $100, use that payment amount in the debt ratios.