For potential home buyers with student loans that are either in a deferred payment status or being paid back through an income based 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 as 1% of the outstanding loan balance. Example if you owe $100,000 in student loan debt the monthly payment will be $1,000. 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) or graduated repayments the monthly payment will be calculated the same as above (monthly liability = 1% of the outstanding loan balance).
This is the same as 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.
To learn more about the Virginia USDA Guaranteed Loan program please call (866) 747-2882.