Are troubled that your mortgage was denied due to student loans? Be strong! You are not alone.
In 2023, student loan debt in the United States is $1 7 trillion, placing considerable strain on potential homeowners. Indeed, these loans are significant impediments to securing a mortgage, largely due to their impact on key factors like your debt-to-income (DTI) ratio and credit score.
However, despite the daunting landscape, emerging shifts in the year 2023 housing market and evolving lending guidelines signal hope for the burdened student debt.
In this article, we will explore what to do when a mortgage is denied due to student loans and steps to take to improve your chances of homeownership despite your student debt.
READ MORE: Mortgage Denied Due to Student Loans? Here's What to Do
Things To Do If You Were Denied a Mortgage
Table of Contents
If you are denied a mortgage because of a student loan debt, which includes federal student loans or private student loans, don’t give up.
There are several strategies that will help you improve your chances of pre-approval on your next application:
● Understand The Reason for the Denial
In the underwriting process lenders are legally obligated to provide a specific reading for your mortgage denial. Maybe the high student loan is the problem then it will impact your Debt-to-income ratio, which is a critical metric lender use to assess your ability to manage your debt payment monthly.
● Lower Your DTI Ratio
Your DTI ratio is the percentage of your gross income used for paying debts including student loans, autoloads, credit card debt, can’t various financial obligations.
To improve your chances to secure a conventional loan or other types of loans, firstly you have to increase your income. You can do this by getting a high paid job or freelance work.
Secondly, try to decrease your debt by paying off those small debts and making extra payments on your student loans.
● Adjust Your Student Loan Repayment Plan
Maybe you are on an income-driven repayment plan like income-driven repayment (IBR) your payment will be zero.
Moreover, it will allow the lender to use the amount for the DTI calculation during the underwriting process.
● Enhance Your Credit Score
If you have large credit history it will counterbalance a high DTI ratio. To improve your credit by making your payment on time, keep your credit card balance low and avoid new credit accounts unless necessary.
● Consider Various Loan Types
Various types of loans come with diverse requirements. Government; backed loans like FHA or VA loans, often have vague lending requirements that will benefit you if you’re struggling with student loan debt.
● Consult a Financial Advisor (NMLS Certified)
Having a personal finance professional will give you advice, and help you with your plan to improve your chances of loan approval.
● Consider To Have a New Lender
You need to know that not all lenders are updated with changes in lending regulations, which have been evolving especially in the Biden administration and throughout the pandemic.
Moreover, if your loan is denied, you can consult another lending professional who holds an NML certification and could offer an approach to the situation.
● Reapply
However, after you’ve taken steps for better financial standing, don’t hesitate to reapply for the home loan. The goal is to prove to lenders that you can consistent in paying your mortgage on time.
Remember, that a denial is not a permanent roadblock but an opportunity to reassess your financial life and make improvements.
Additionally, with patience, persistence, and well-informed financial decisions, you can steer the real estate market to manage your closing costs and make payment for your dream home, overcoming the hurdle of student loan debt.
READ MORE: Does Student Loan Debt Mean I Can’t Get a Mortgage?
Guidelines of Mortgage Lender for Student Loans
Student loan debt is a significant obstacle to homeownership.
Moreover, the updated existing programs and policies, aim to lift this burden and make getting a mortgage easy for borrowers.
Existing Programs and Policy Updates
Government-backed loan programs like those from the Federal Housing Administration (FHA), Fannie, Mae, Freddie Mac, VA and USDA have been revised in response to the crisis.
Furthermore, here’s how these changes can assist prospective homebuyers grappling with student loan debt:
1. Federal Housing Administration Loans
This will be a considerable shift to aid the income borrowed and racial homeownership gap, the FHA has relaxed its stance on student loan debt.
2. Fannie Mae Loans
They updated their guidelines on student loan debt. If a monthly payment student loan is provided on the credit report, the lenders will use that amount for qualification purposes.
3. Freddie Mac Loans
Freddie Mac’s student loan guidelines require all borrower’s debts incurred through the note date to be considered for qualifying the borrower.
Moreover, for student loans in repayment, or deferment, if the monthly payment amount is greater than zero, lenders use the monthly payment amount to report on the file documentation.
4. VA Loans
For VA loans, maybe the student loan is deferment for 12 months beyond the closing date, and the monthly payment will not be considered by the lender.
5. USDA Loans
For USDA Loans, lenders must use the payment amount from the credit report or the documented payment if it’s above zero.
However, if the payment amount is zero, then lenders use 0.5% of the outstanding loan balance from the credit verification.
READ MORE: Does My Student Loan Effect Get A Mortgage?
Conclusion
Guiding student plan debt while pursuing a mortgage can be a long-time burden. Don’t panic without the right knowledge that has been mentioned in the article, it’s a challenge you can confidently grapple with.
