USDA and Student Loan Deferments
USDA has a non-standard approach to student loans that have deferred payments. Most other loan programs will remove the payment if the student loan is deferred for at least 12 months from the closing date. USDA will not remove ANY student loan payments from your debt to income ratios. This means you must qualify for the loan with the payments for the student loan included even though they may be deferred.
For example, Ms. Smith has a student loan that is current deferred. The minimum payment on the loan when out of deferment will be $100. USDA will require that $100 payment be included in her debt to income ratios even though she is not obligated to pay on it when she applies for the loan.
For the USDA Rural Development Single Family Housing Guaranteed Loan Program, deferred student loans should be included in the debt ratio calculations for Guaranteed Loans regardless of the deferment period. Rural Development RD Instruction 1980-D, section 1980.345(c)(1) states: “Long term obligations include those obligations . . . with a remaining repayment period of more than 6 months and other shorter term debts that are considered to have a significant impact on repayment ability.”
Deferred student loans are long term obligations with remaining repayment periods of more than 6 months, and they must be included as part of the applicant’s recurring monthly debt obligations. If the credit report does not reflect a monthly payment due at the end of the deferment period, the lender may request a copy of the applicant’s payment letter, or utilize the industry standard of estimating student loan payments as 1% of the loan balance. Therefore a deferred student loan balance of $12,000 should have a corresponding monthly payment of $120 if no estimated payment is verified by the lender. This guidance applies to all manually underwritten loan files as well as loans submitted through the Guaranteed Underwriting System (GUS).
As with all loan scenarios, you should contact one of our knowledgeable loan officers immediately to determine if student loans will affect the amount you may qualify for. If you have student loans showing on your credit report with more than 6 payments left, they will need to include a payment for them. This can severely limit the amount of a loan you can qualify for.