Thanks for the kind words and for sharing your personal experience!

It is absolutely correct that regardless of a $0.00 payment showing, due to a government or personal forbearance, if there isn’t a payment plan in process, lenders must use a 1% payment (student loan balance) on conventional loans and .5% payment on government loans. I had to explain that is still a debt we have to account for because monthly payments will resume. If they had proof of loan forgiveness prior to closing, we could eliminate it; other than that, I needed proof of what their payments would be as far out as 12 months after closing. Some banks may differ. Some did not know anything about how to get into a repayment plan or how to obtain a letter reflecting their payment dates, which some loan services have as an option to print when logging in now.

For residents and doctors, we could use the simulator payment, but it was still a process to get the information required for underwriting. I knew it all by heart so it wasn’t hard for me. At the very beginning of the process — at pre-approval stage when I pulled credit, if I saw student loans, I would call them and be sure to get accurate payment info, answer all their questions, and explain all that would be needed to get underwriter approval. I never wanted to send a client out with a pre-approval letter, have them go under contract, and then come back and not be approved. So a lot of emphasis was put on the truthfulness of their application and information they provided.

And just as you stated, I had a few issues with cosigners, who do not make the payments at all on a debt for the reasons you stated above. There is definitely a lot to consider when applying for a mortgage. This was great!! 🙂 I just resigned my positions as a mortgage loan officer a week ago.

Unfortunately, it doesn’t usually work that way. When you pay down a student loan balance payments typically don’t change.

On a credit card, if you pay down the balance, it will lower how much you have to pay each month, but with items like car loans, student loans, and personal loans, payments usually only change if the interest rate changes or you change repayment plans (if available).

With a gap that small, can you not just put something like $500 to the student loan, prove the lower balance, and get your mortgage?

Wow, that is so close.

It’s definitely possible your underwriters will accept it, but it is far from a certainty. This is one of those things where things can vary from one lender to the next. For example, under new rules for the Covid pause, FHA underwriters can use .5% instead of the standard 1% for loans in forbearance.

Hi EJ,

I saw both of your comments, so I’ll respond to this one.

My first thought is that your lender shouldn’t have scheduled an appraisal if there was an issue with your student loans or DTI. If they later reject you based upon information that was available before they scheduled the appraisal, I’d ask for my money back as this was their error.

Generally speaking, if the number is $0, they will use 1% of the loan balance as a placeholder in the DTI calculations, but some are using even lower numbers. Sadly, most underwriters follow a strict procedure and there isn’t really much you can do to change a rejection into an approval.

Hi, So, if my IBR “payment” is $0 er month, will Fannie Mae and Freddie Mac accept that when calculating DTI?