Do school loans using 48% of my revolving credit impact my ability to get a house?

Question

I checked out my trans-union report, and it said that like a measly $7,000 in sallie mae loans that I took out a few years ago are utilizing 48% of my revolving credit. Isn't that going to hurt me when it comes time to apply for a mortgage?
What can I do about this?

Also, where can I see my credit score NUMBER?

Account Closed · Answer

I'm not a FICO expert, but I thought any student loans through Sallie Mae would be considered installment loans and not revolving loans.  So they hurt your debt-to-income ratio, but they have minimal impact on your credit score (as long as you make your payments).

Matt M. · Answer

so sorry I didn't reply sooner, I didn't realize that somebody had commented in here.

Yes I plan to save the VA loan for the 'big boy' purchase, whether thats a HUGE investment property (15+ apartments) or my own home that I will calm down and retire in.

Sounds like you have an awesome plan for your investments also tho bud, thanks for the input.

James H. · Answer

I meant to say, also, that I think it is wise to save your VA bullet for something that counts like you are doing. And by something that counts, I mean the most expensive purchase. True the rates are lower, but not by much. More importantly is the 0 down payment. That can be a real blessing on something that would otherwise take a long time to save for. There is a funding fee - like 2.15 or 2.5 points depending on your status (active duty or reserve) that you pay instead of the PMI. This can be rolled into the loan or not. So that increases your cost to borrow money when evaluating the APR, but it is still much better than the current PMI costs which are getting pretty steep relative to the current market.

The one catch, though, is that a property has to be in pretty good condition to pass the VA appraisal (usually better than would be required to get a conventional or FHA loan, but I have heard this is changing and is also highly dependent upon the appraiser).  So that can really limit your ability to get into a property at a discount. That is why we are using our VA bullet for our personal residence. Our primary is FHA and we are converting that one. It was not on purpose, but it worked out very good for us to go FHA for our first and then VA for our second now that we make more money and can afford a better house in a better neighborhood. The money we will save on down payment ($26,000) will go a long way to pay down some of my own student loans....

Matt M. · Answer

Wonderful post.....  lots of information within it.

James H. · Answer

FHA you could probably go higher. There are still banks lending up to 52% for FHA if you have offsetting factors.

VA you can go even higher because they also do a residual income analysis also. I am working on a VA loan right now (have been pre-approved and conditionally approved pending submittal of my documentation) that the bank is calculating a 57% DTI ratio and are telling me not to worry about it, that it is fine based on the residual income analysis. I am still poised to reduce some debt with some available cash in case they come back last minute with a surprise "no". But for now they are telling me "do nothing". I should know for sure in a couple weeks.

My DTI ratio is not truly that high, but they are not counting my rental income from two properties, but are counting the taxes and insurance on one that I own cash against me and the whole PITI on the other one that I am currently living in (will convert it to rental) even if I get a signed lease. The reason is because I am a few months shy of having 2 years landlording experience. It did surprise me that they would count taxes and insurance from a paid and clear property against me. I'm not surprised anymore, but it is kind of stupid.

Matt M. · Answer

Mike: The student loans show a balance, but I'm not sure if they were reporting a monthly payment or not? Like I said I wasn't thinking and didn't print that darn paper out.

Brian: So 45% for an fha? Very cool... that works for me. I can get that 48% down easily. I'm going to do a va loan on my 2nd purchase... where I really need to make it count since that will be the one that ultimately brings in the major cash flow and I'll want the best rates etc.

Thanks again for the input though.

James H. · Answer

Student loans will not count against your DTI ratio if you can show they will be deferred for at least one year past your closing date.

I have student loans (WAY more than you) and there is a lot of talk about about stuff in this thread that has not been an issue for me getting loans.  Maybe it is a terminology thing. Anyway, your fico score doesn't really matter. The banks will use your middle score of the three bureaus. In general, they will all be close to fico, but they mine vary as much as 15 points from highest to lowest.

If you are going FHA, you can go above 45% DTI. If you are going VA you can as well. I do think if you go conventional, you will be stuck around 45-48%. Different banks have different overlays.

Long story short: If you meed the minimum credit score and the DTI ratio criteria, you can get a mortgage (provided you have sufficient cash to cover down payments and closing and any other cash reserve the bank requires). Call around because there is definitely a differnce between banks when it comes to overlays and competence of their mortgage officers. They can even have different auto-underwriting software.

All this other business about the percent of your revolving credit or percent of your credit composed of student loans is irrelevant provided your credit score is high enough. The make-up of your debt will effect your credit score, but deferred or paid-on-time student loans don't have too much of an effect on your score - especially not a measly 7,000.

Mike H. · Answer

Well, it depends on how they're reporting. If your student loans are showing up with payment amount listed at $0, then you should be fine. I'm actually not sure how the bank would use those as part of your dti calculation.  They might not count at all. I think it just depends on how they're being reported and on what banks do when they see those loans on hold. Thats a question for a mortgage broker/lender.  They might estimate what the payments will be when they have to start being paid or they might just say since they're showing up as $0, they're not going to count at all.

But if they're reporting with a monthly payment, then, yes, your stupid loans might cause you not to get a house.

It would depend on how much the payments would be, what the total of your other credit payments might be, and how much money you're making today.

Banks have really tightened up on that DTI ratio. It used to be some would go over 50% even. Now some won't touch you if you over 35%. I want to say its between 35 and 45% these days depending on the bank.

Matt M. · Answer

Kyle: I've been using annual credit report, and already did 2 of my scores and have 1 remaining... I've been staggering how I view them so that I can see at least 1 of them throughout the year.

Mike: So even though my student loans are SUPPOSED to be on-hold because I'm still in school, you are saying that they are still counting towards my DTI?  And you are also saying that when I go for a mortgage, that my stupid loans might be what causes me to not get a house?

Aaron, I've heard of creditkarma but wasn't sure if it was legit... thanks for the heads up I might check that out.

Aaron Matassa · Answer

Whatever score you get is going to be a ballpark score, not exact. You can pay for one, or you can go to CreditKarma.com and see yours free. Gives you a good enough range. There also another site called Quizzle.com. I have used CreditKarma and its a good bit of ads, but legit. And dosnt hit your score.