VA Loans and Student Debt
Tucson, Arizona: Received a phone call from a real estate agent the other day asking me how does the VA look at student loans. Her client’s spouse had quite a bit of student loan debt and they didn’t think they would qualify for a VA loan. So I thought I would take a second to explain how the VA looks at student loan debt.
Student Loan Deferment and VA Loans
First, it the student loan is deferred 12 months or more from the close of escrow date, then the lender does not have to count the debt. But what if it is less then 12 months deferred or there is no payment on the credit report?
Student loan debt can get confusing as each lender and investor will look at it a little differently. The Department of Veteran Affairs recently issued their Student Loan Payment Policy (VA Circular 26-17-02 – Clarification and New Policy for Student Loan Debts & Obligations) and there is some good news for Veteran borrowers with such debt.
Student Debt and VA Loans, What you need to know
If a veteran or spouse has a student loan that is in a repayment or is scheduled to begin repaying within 12 months from the date of the VA home loan closing, then the lender must take into consideration what the monthly payment on the loan will be. To calculate, the lender should you this formula: take each student loan at a rate of 5% of the outstanding balance divided by 12 months.
For example: credit report shows a $25,000 student loan that has a deferment less then 12 months from the closing date on the VA loan. There is no payment showing.
$25,000 student loan balance X .05 = $1,250 … divided by 12 months = $104.17 per month is the monthly payment for the debt ratio purposes.
But what if the credit report shows a payment that is higher than the calculation above? The lender must use the payment on the credit report.
So what if the credit report has a student loan payment that is less than the 5% calculation? In this case, the lender can use the lower payment if the borrower can provide a letter from the student loan servicer that actually reflects the loan terms and payment information. This letter cannot not be dated more then 60 days from the VA loan closing date. The borrower can also use an electronic copy from the student loan servicer’s website or a printed statement provided by the student loan servicer. However, this is a lender discretion on what documentation they will accept.
Tucson/S. Arizona: 520-303-5620 Phoenix/N. Arizona: 480-648-1733
If you have any questions on Student loans and using a VA home loan, or other VA loan questions, then please feel free to contact us. And if you like this post, then please share or like… or leave a comment below.
The Joe’s My Lender Team – Arizona’s VA home loan experts! Whether you live in Tucson, Phoenix, Scottsdale, Yuma and Sierra Vista, or anywhere else in Arizona, we got you served. We are here to help serve you. Tucson and Sierra Vista (520) 303-5620 or Phoenix: (480) 648-1733