Debt-to-Income Ratios (DTI)


It’s all about your ratios.   When you apply for a loan the lender attempts to determine if you have the ability to pay back the loan.  One way they do this is by looking at your debt-to-income ratios (DTI).  Without getting too complicated, your debt-to-income ratio is the percentage of your gross monthly income that is spent on monthly debt payments like credit cards, student loans, car loans, child support and mortgage payments. Just like your credit score, your student loans impact your ability to qualify for a loan from any kind of lender.


For all student loans, whether deferred or not, in forbearance, or in repayment, a monthly payment must be used when qualifying the borrower.   To determine the monthly payment the lender will use, follow the points below.

 



Fannie Mae 


Lenders will use the monthly amount provided on the credit report. If the credit report does not provide a monthly payment for the student loan, or if the credit report shows $0 as the monthly payment (which may be the case for deferred loans or loans in forbearance), the lender must calculate a qualifying monthly payment using one of the options below:

  • Use 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment).
  • A fully amortizing payment using the documented loan repayment terms. 

 

** For student loans associated with an income-driven repayment (IDR) plan, even if the payment is $0, this can be used to qualify the borrower only if the loan is not in deferment. 

 



Freddie Mac 


For student loans in repayment, use the greater of

  • The monthly payment amount reported on the credit report
  • Use 0.5 % of the original loan balance or the outstanding loan balance, as reported on the credit report, whichever is greater.

 

Student loans in deferment or forbearance, use the greater of

  • The monthly payment amount reported on the credit report
  • Use 1% of the original loan balance or the outstanding balance, as reported on the credit report, whichever is greater.




FHA

Regardless of the payment status, the Mortgagee must use either:

1. The greater of:

A. 1 percent of the outstanding balance on the loan

B. or the monthly payment reported on the borrowers credit report

2. or the actual documented payment, provided the payment will fully amortize the loan over its term.



American Home Finance Group Inc NMLS# 336310

100 E Linton Blvd Suite 305A
Delray Beach, FL 33483