Hawaii Housing Facts
- Hawaii residents have the highest debt-to-income ratios in the country, paying 36.2 percent of our incomes on debt service.
- 49 percent of Hawaii residents have student loan debt.
- The average student loan debt balance in Hawaii is $25,125.
Source: Pacific Business News, The Institute for College Access and Success
Changes in the student debt and debt-to-income calculation
Prior to this year, mortgage underwriting rules required lenders to base their debt-to-income calculations on the total amount of the loan – and not on the actual out-of-pocket monthly payment. The lender required originators to calculate the payment based on 1% of the total loan amount – even though the borrower may be on an income-driven or income-based repayment plan and have a much lower monthly payment.
For example, a $200,000 outstanding student loan used to require the payment to be calculated as $2,000 when, the applicant may only be paying $300 per month out-of-pocket under an income-based repayment plan.
With the new program called Student Loan Solutions, introduced in 2018, Fannie Mae is directing originating lenders to use the monthly student loan payment listed on the applicant’s credit report, rather than taking a percentage of the total balance and plugging that in to the DTI calculation.
The difference can be huge – and can make the difference between failing to qualify for a conventional mortgage under debt-to-income guidelines and sailing through to an approval for a great loan at a great rate!
Note: This program does not apply to student loans in forbearance.
When payments are being made by others
Furthermore, Fannie Mae made it easier to qualify for a great home loan if someone else is making the student loan payments. For example, if an employer or a relative is making the student loan payments, Fannie Mae will take that into account, and not use the student loan payment against the applicant.
To qualify, you must be able to show a minimum of 12 months of cancelled checks or bank records that evidence a record of on-time payment – for the full amount of the loan payment. That is, it’s an all-or-nothing deal.
*Note that this provision is not limited to student debt. It applies all other forms of non-mortgage debt, too – as long as the third party is making the entire monthly payment on your behalf, and has a track record of doing so, on-time, for the past 12 months.
The bottom line is this: Lenders know people have student loan burdens, but just because you carry a manageable student loan doesn’t mean you’re a bad risk. So, don’t be discouraged by your student loan balance. Thousands of people with student loan balances are getting approved every month.
Looking to refi to pay off student loans? There’s a program for you, too, that can save you thousands.
To learn how these programs may benefit you, call Pacific Home Loans today at (808) 891-0415.
Or apply now online.
We look forward to hearing from you!