Getting an education is one thing, paying for it was always another thing. Even more so, applying and being approved for a mortgage with outstanding student loans puts you into a whole new ballgame.

 

When applying for a mortgage, the rule was that if you were in repayment, the bank would include that payment in your monthly debt, just like a credit card. If you were in deferment, you were not obligated to pay back the student loan yet and it would not be included in your monthly debt. The caveat here was that it had to be deferred for at least two years. At that time it was very easy to call your student loan lender and ask for a deferent or extensions for “financial hardship” reasons and then produce this in writing to your mortgage lender. The student loans would be excluded from your debt and you would be able to qualify for a larger home loan-especially those with medical school loans in the hundreds of thousands!

 

The new rules for mortgages include all of your student loan payments whether deferred or not. Thus, if they show on your credit report as “not yet in repayment”, the bank will calculate your monthly payment as a percentage of the total due. The underwriters are required to make a judgment call of 3-5% of the total due. If you have $50,000 in deferment, they will add  between 1,500 and 2,500 a month, which can be a deal breaker for any mortgage application! The best thing is to call your student loan provider and ask them for a schedule of the payments. This way they bank will calculate your monthly payment based on the actual amount, which is typically lower than just taking a percentage of the total.

 

The other big deal now is that if you co-sign for someone else’s student loan, it will be calculated into your debt as if it were your own. So, when a parent co-signs for a child, it will be included in their debt even if the child is responsible for making the payments themselves. This would be the same for loans currently being paid or loans that are deferred. This is seemingly unfair to the co-signor that helps the student get ahead to be penalized for it. Unfortunately, as the argument goes, there is nothing to do to get around this anymore. Simply not co-signing for a student loan because it will increase a parents’ debt load would be a sad way to miss out on a future. Isn’t the education and advancement of our children part of the American dream? Has the American dream been ruined further by greed and process?

 

Dale Siegel