I recently saw something I hadn’t see before. I pulled a client’s credit report and it showed a student loan balance of over 200k with $0 monthly payment due. Now people can request student loans be deferred or request a forbearance which gives them some breathing room before they must begin repayment. During one of these periods their credit report won’t even show a $0 due and it will indicate deferment or forbearance. Which means seeing a $0 reported is interesting because as I found out my client is currently in repayment. So, how is it that the creditor is not requiring a payment? It’s because my client is in an Income Based Repayment plan and the latest calculation by the creditor yielded $0.
FHA recently issued Mortgagee Letter 2016-08 to provide guidance on calculating student loan payments when a monthly payment is not being reported on the credit report. FHA reduced the requirement of 2% loan balance calculation to 1%; however, FHA will no longer allow the use of a payment less than 1% unless it is the fully amortized payment according to the original terms of the note. Income Based Repayments-IBR less than 1% may not be used.
If you’d like to know what you can do to lower your student loan debt and maximize your home purchase power click back there on the link.
By David Hughson