Student loans may deny mortgage
Seventy-five percent of college graduates with student loans said student loan payments prevented them from buying a house or car, according to a recent study from the Cambridge Consumer Index.
Director of Admissions and Financial Aid Tammy Harrison said over the past few years UALR has required additional counseling hours from students who apply for student loans.
“We want to make sure students are well-informed borrowers,” Harrison said. “[Students] should understand that [student loans] are not just free money that someone is going to forget about. It is an investment in [their] education.”
Harrison said students should borrow only what they absolutely need instead of supplimenting their preferred lifestyle.
She advises students to consider the essentials, set a budget and spend their refund checks on educational purposes.
According to Harrison, students borrow on average $25,000 to $27,000 with a 6.8 percent interest rate.
From that average, the standard 10-year repayment plan would require the student to pay about $290 a month.
Harrison said if a graduate is 90 days delinquent on a student loan payment it is then reported on their credit.
After 270 days the student will lose options for repayment plans and may have their wages garnished.
“UALR is responsible to make sure our students are repaying those loans,” Harrison said. “[It] is always a challenge for schools because sometimes that student graduates and they don’t see us as a resource and they always should.”
Harrison said graduates who face financial challenges can reach out to UALR for additional help.
“We can guide them back to that student loan servicer and we can talk about repayment options,” she said.
Extended repayment plans can stretch the standard period of 10 years to around 25; however, more would be paid in interest.
According to financial planning on About.com, lenders advise students to keep their loan payments eight percent or below their total income. This may not seem like much, but if interest rates rise so will future monthly student loan payments.
UALR provided availability to over $60 million in student loans last year, according to Harrison.
She said within the last two years 9.7 percent of UALR students defaulted on their loans.
Bucky Houser, vice president mortgage loan manager at Arvest Mortgage Company, said because each mortgage applicant is considered individually there is not a specific disqualifying amount of student loan debt.
Houser said Arvest looks at two main items when considering potential borrowers.
It looks at the borrower’s middle credit score from the three main credit bureaus.
The second item is the debt to income ratio. The DTI includes: the borrower’s current gross monthly income, purposed housing payments and revolving debt.
“The vast majority of loans that we see from first time home buyers typically tend to fall through the Federal Housing Administration mortgage loan program,” Houser said. “Just because the FHA program does not have as much of a down payment requirement.”
According to the FHA, “if a debt payment, such as a student loan, is scheduled to begin within 12 months of the mortgage loan closing, the lender must include the anticipated monthly obligation in the underwriting analysis, unless the borrower provides written evidence that the debt will be deferred to a period outside this time frame.”
“[Generally speaking], if [a student’s] total debt and their new housing payment is starting to exceed 45 percent or more of their gross income that is when you could start to see some issues with gaining approval,” Houser said.
“But on the other side with mortgage interest rates, they’re trading at some of the lowest levels we have ever seen historically as a nation,” Houser said. “When you’re looking at debt to income ratios that helps because qualifying rates today are so low that it keeps new mortgage payments down. That’s definitely a positive.”