Many Veterans who use their VA loan also have student loans and repayment obligations. So, how do they affect a borrower seeking VA loan pre-approval? See the guidelines below.
Student Loans in Deferment
If the borrower provides written evidence that the student loan debt is deferred at least 12 months beyond the date of closing, a monthly payment does not need to be considered by the lender. This is great news for a Veteran, because their debt will not impact their debt-to-income (DTI) ratio.
Student Loans in Repayment
If a student loan is in repayment, or scheduled to begin within 12 months from the date of VA loan closing, the lender must consider the anticipated monthly obligation in the loan analysis. Therefore, it will be counted toward the Veteran’s debt-to-income ratio (DTI).
At Hawaii VA Loans, we utilize the payment established by calculating each loan at a rate of five percent of the outstanding balance divided by 12 months.
Example: A borrower has a $25,000 student loan balance and you multiply it by 5%, which equals $1,250. This amount ($1,250) is divided by 12 months to equal a monthly payment of $104.17.
Student Loan Payment on Credit Reports
If the credit report shows that the student loan payment is greater than the threshold payment calculation (as given in the example above), the lender must use the payment recorded on the credit report.
However, say the payment reported on the credit report is less than the threshold payment calculation above. In order to count the lower payment, the loan file must contain a statement from the student loan servicer. The statement must reflect the actual loan terms and payment information for each loan.
Note: The statement must be within 60 days of VA loan closing. It may be an electronic copy or a printed statement from the servicer’s website. Furthermore, it’s the lender’s discretion as to whether the credit report should be supplemented with this information.