Student Loans In Collections, What Can I Do to get Approved For A Kentucky Mortgage ?

Student Loans In Collections, What Can I Do?

If you have public student loans in collections, you really have three options to resolve it so it is not a CAIVRS issue. 1.      Pay it off in full – Not typically an option because very rarely do the clients have the funds to do so. 2.      Consolidation – Only takes about 90 days to consolidate and resolve CAIVRS issues. However, you push forward the last activity dates, DLA, and also introduce a new credit trade line that dilutes the length of the credit history. So you will normally see a drop in credit score. 3.      Rehabilitation – It is the slowest of all the options, but is the best thing for the clients’ credit scores. It is a 9 month commitment and once the client makes 9 consecutive payments, they will change the collection status to a good standing status. This will typically net a 40-100 point boost in the score depending on how many other collections are on the credit report. If your client does not know who is servicing the student loan, they can contact the Student Loan Default Resolution Team at 1-800-621-3115 or visit the website at myeddebt.ed.gov Bonus Tip: Private student loans do not adhere to consolidation or rehabilitation rules. If the client has private student loans in collections they will need to pay them off in full, or they will need to set up a payment plan on them. They will still remain in collections with a payment, but if you can get a qualified credit score you can push forward the loan including the liability payment towards the debt to income ratio. As always, we bring you the best content so you can do what you do best, CLOSE LOANS! If you aren’t already sending us every credit challenged borrower you have, what is stopping you? Guidelines for KY FHA, VA, USDA and VA Mortgage loans with Student Loans on A Credit Report: Kentucky Fannie Mae or Conventional Guidelines for Student Loans: If a monthly payment is on the credit report, the lender may use that amount for qualifying purposes. If a monthly payment is on the credit report is incorrect, the lender may use the monthly payment on the most recent student loan statement If the monthly payment on the credit report is zero, the lender must use one of the following options to calculate the payment for qualifying purposes Document the borrower is on an income driven payment plan and the actual monthly payment is zero  Use 1% of the outstanding student loan balance as the monthly payment Calculate a fully amortized payment using documented loan repayment terms Kentucky FHA Mortgage Loans Guidelines: Regardless of the payment status (currently in payment or deferred), the lender must use either: The greater of: 1% of the outstanding balance; or The monthly payment reported on the credit; or  Calculate a fully amortized payment using documented loan repayment terms Kentucky USDA or Rural Housing Guidelines:     Regardless of the payment amount reporting on the credit, the lender must include the payment as follows: A permanent amortized, fixed payment may be used in the debt ratio when the lender retains documentation to verify the payment is fixed, the interest rate is fixed, and the repayment term is fixed. Payments for deferred loans, Income Based Repayment (IBR), Graduated, Adjustable, and other types of repayment agreements which are not fixed cannot be used in the total debt ratio calculation. One percent of the loan balance reflected on the credit report must be used as the monthly payment. No additional documentation is required. Kentucky  VA Mortgage Guidelines for Student Loan: If the borrower can document the student loan will be deferred 12 months from the closing date, the monthly payment does not need to be considered If a student loan is in repayment or scheduled to begin repayment within 12 months from the closing date, the threshold payment amount must be calculated by  using 5% of the loan balance divided by 12 months If the payment reporting on the credit report is greater than the threshold payment calculation amount, then the credit report payment must be used for ratios. If the payment reporting on the credit report is less than the threshold payment calculation and the lender is using the lower payment to qualify the borrower then: A statement from the student loan servicer reflecting the actual loan terms and payment information must be included in the file. The statement must be dated within 60 days of closing It is the underwriter’s discretion to use the lower payment As you can see, Fannie Mae or Conventional loans is the most lenient when it comes to qualifying for a mortgage loan with someone that has a lot of student loans on their credit report.