Well, the 3+ year break in student loan payments is coming to an end and as of 9/1/23, interest on federal student loans has resumed.
What you need to know when it comes to securing a mortgage:
When there is no student loan payment reported on your credit report, the lender uses either .5% or 1% of the loan balance as the minimum payment due. (.5% if the loan goes to Freddie Mac; 1% if the loan goes to Fannie Mae). I have had a recent client that owed over $400k on her student loan, so obviously hitting her with 1% significantly affects her qualifying ratio in a negative way. If her actual monthly payment was being reported, or if she can document what her stable monthly payment will be, then we could use that and she would qualify sufficiently. This means that student loan servicers reporting payments may be good news for many in terms of how a lender looks at one’s qualifying ratio and affordability.
Also, did you know? If you own a home, you can pay off your student loan with refinance proceeds and that loan is NOT considered a cash out refinance? It may make sense depending on your student loan rate and payment, your monthly cash flow needs, as well as the current interest rate on a new mortgage. Contact me with any questions or to provide analysis for your situation in particular.
