If you have student loans in forbearance, you may have difficulty qualifying for a home loan. However, we can help!
The Coronavirus Aid, Relief, and Economic Security Act was created to give financial aid to Americans during the coronavirus pandemic. The Senate passed the CARES Act in March, and one of its defining features was an automatic forbearance on federal student loan payments until the end of September. The suspension of payments has dramatically assisted many people, but for others, it has brought about unforeseen problems. This is especially true for would-be homebuyers who are interested in taking advantage of the record-low mortgage rates.
If you have student loans in forbearance, you may have difficulty qualifying for a home loan. However, the Sean Zalmanoff Mortgage Team can show you what you need to do so that you can get approved.
How Forbearance Affects Your DTI
Your DTI, or debt-to-income ratio, is one of the primary factors lenders consider when deciding whether or not to preapprove a mortgage. Your DTI measures how much money you owe versus how much income you make each month. So it’s not surprising that your federal loan payments will factor into this equation.
When a mortgage lender gathers information on your monthly payments, and you have a loan in forbearance, the payment information is often not reported. When this occurs, the lender will usually use 1% of the outstanding loan balance as an estimated payment. If your student loan debt is high and you’re on an income-driven repayment plan, you may end up having an estimated payment amount that is higher than what you pay each month.
When this situation occurs, the higher payment amount could raise your DTI so much that you cannot get preapproved for a loan, or you could get approved for a much lower loan amount that you would otherwise have been able to get.
How to Get Preapproved for a Home Loan
If this is your situation, don’t lose hope. There are some things that you can do to clear up the confusion your student loan forbearance has created. First, you can call your lender and ask them to remove the forbearance. In this case, you would continue paying your loan as and this would allow the lender to access your actual payment information.
However, if this is not the right option for you, you can shop around until you find a lender that is willing to work with your situation. When given the right paperwork, another lender may be able to recalculate the DTI with the correct student loan amount.
Better Rate Mortgage, with Sean Zalmanoff
If you are ready to buy a home but have a student loan in forbearance, give us a call. We will not only take the time to match you with the best mortgage loan product available that you can qualify for before you even have a house in mind, but we also go further. Our mortgage underwriters will examine your credit history, employment history, debt ratios, down payment amount, reserves, and any other necessary documentation to get you approved for financing while your house is still “To Be Determined.”