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What are USDA student loan guidelines in 2017?

July 21st, 2017 by usdaadmin

How can student loans affect USDA loan approval?

Unfortunately in our world today, qualifying to buy a home with student loan debt is becoming a bigger challenge every day and this is not just an isolated problem for First-Time Homebuyers.

In today’s video I will break down the calculations, explain how student loans are considered with USDA loan qualifying, and show how it can impact your budget and qualifying sales price.

But before we get started, 2nd opinions are always important, so if you have financing questions and are working with another lender, we offer this complimentary service where you can get access to an expert 2nd opinion which is great for both pre-qualifications and those transactions already under contract and experiencing financing difficulties.

What are USDA student loan guidelines in 2017?

In a recent report by the Federal Reserve it stated “Among young adults who attend college, it is increasingly expected that at least a portion of their education will be financed through a student loan or other forms of borrowing.”Tampa FL USDA Approved Lender

While many of us may say that seems like common sense, the actual numbers are somewhat staggering. In a February 2017 article by Forbes it reported that “Student loan debt is now the second highest consumer debt category” and “there are more than 44 million borrowers with $1.3 trillion in student loan debt in the U.S. alone”!

Now, after we all have taken a deep breath, let’s get into the details of what are the USDA student loan guidelines in 2017.

Under prior guidelines, USDA loans had separate requirements for Income Based Repayment Student loans, but please note that these no longer apply under the current USDA 3555 handbook.

Now, the following calculations will apply which require USDA approved lenders to include the greater of:

  • One percent of the outstanding loan balance; or
  • The fixed payment as reflected on the credit report.

However, the key is that if the payment reporting on the credit report is considered a repayment plan that is subject to change, they will not be considered acceptable and therefore will have to take the one percent of the outstanding balance for USDA loan qualifying.

While this may seem confusing, here are examples of the type of student loans that may be reporting a payment, but would not be considered acceptable:

Tampa FL USDA Approved Lender

  • Income Based Repayment Plans (IBRs)
  • Graduated Plans
  • Adjustable Rates
  • Interest Only, and
  • Deferred Plans

Please note that in order to use monthly payment amounts listed on the credit report that are less than one percent of the outstanding balance, we must document that with proof of loan terms from the student loan servicer which shows it is on an acceptable fixed rate payment plan.

In summary, when trying to qualify for a USDA loan with student loans be prepared to calculate 1% of the outstanding balance towards your qualifying ability unless you can get proper documentation that verifies you are on some type of acceptable fixed repayment plan.

Sean Stephens | NMLS# 185288

Toll Free: 800.806.9836 x280

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