USDA/RD DEBT TO INCOME CALCULATION REGARDING STUDENT LOANS

On June 19, 2012, USDA clarified its debt to income ration calculation regarding Student Loans. 

Student loans are long term liabilities that must be included in the debt ratio calculation per RD Instruction 1980-D, section 1980.345(c).  Because some student loans are not on fixed payment plans, the repayment amount due may increase or decrease without regard to additional liabilities incurred by the borrower.  Therefore an accurate monthly liability amount for this payment must be included in the debt ratio when qualifying the applicant for a long term mortgage obligation.      

All student loans must have documentation to verify the current payment due (e.g. letter from a loan servicer, online account verification, etc.).  Verifications are valid for 120 days, 180 days for new construction. 

Student Loans:  Conventional/Fixed Payment/Deferred:

  • ·Lenders may review the account statements and use the fixed monthly payment due (no adjustable payments). 
  • ·Deferred student loans that are not in repayment status must use an estimated payment of 1% of the loan balance, or a verified fixed payment provided by the loan servicer to document the payment that will be due. 

Student Loans:  Income Based Repayment (IBR): 

  • ·IBR amounts are not fixed payments and may increase annually.
  • ·IBR payments of $0 are not eligible to be used in the debt ratio. 

When an applicant provides documentation of an IBR agreement and payment from the loan servicer the following apply:

1.      If the IBR payment is less than $100 and 1% of the total loan balance is more than $100, a minimum payment of $100 must be included in the debt ratios.

2.      If the current IBR payment is over $100, lenders may use that payment amount in the debt ratios.  

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About Gary Long
Mortgage Banker in the Kansas City Metro. Knowledge is power and my clients are powerful.

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