Hello, LOs!
Nearly two years ago to the day, I baked myself a cake. It wasn't a particularly good cake, but I was in a celebratory mood. I had just made the final payment on my last remaining student loan. It took about a decade!
As many of you already know, student loans are among the biggest obstacles to overcome for first-time homebuyers. Roughly two-thirds of first-time homebuyers have student debt.
There are 49 million people a year who get a mortgage to finance their home. But one stat that routinely gets left out of the conversation, said Dave Savage, the founder of Mortgage Coach, is that 45 million students have debt. And pre-pandemic, despite many having good credit and income, about 80% of them reported having trouble paying their loans, he said. That problem hasn't gone away.
"The number one reason for not qualifying for a home is DTI, not credit issues," said Savage. He doesn't think LOs are providing enough education to prospective borrowers who have student loan debt.
"I think the average loan officer understands guidelines and knows that Fannie is at 1%," he said. "So if you've got $100,000 in student debt, you've got to underwrite that as a 1% debt-to-income ratio, meaning you're going to count $1,000 in monthly payments."
Savage says they should be focused on income-based prepayment. Essentially, given their income, how much do they need to pay? In many cases, they qualify to have their debt forgiven, he said.
Savage, whose company just partnered with LoanSense on an affordability calculator designed for LOs, said it's possible to lower a borrower's DTI in just three weeks.
LOs – I'd like to hear from you. How big an obstacle is student debt for your borrowers? Do you advise them on how to lower student debt to qualify for a bigger mortgage? Let me know – jkleimann@housingwire.com.
Hope you all have a great weekend!
James Kleimann
Managing Editor, HousingWire
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