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Mortgage Experts discuss qualifying with student loans

How to Qualify for a Mortgage with Student Loans

How to Qualify for a Mortgage with Student Loans

Josh Lewis, Scott Schang, and Scott Baade discuss how to qualify for a mortgage loan when you have student loans.

Here’s a quick summary of how each loan type treats student loans:

  • Fannie Mae Conventional:  $0 income-based repayment (IBR) OK – No payment plan use 1% of the loan balance
  • Freddie Mac Conventional: $1+ income-based repayment (IBR) OK – No payment or $0 payment use .5% of loan balance
  • FHA Loan: $1+ income-based repayment (IBR) OK – No payment or $0 payment use .5% of loan balance
  • VA Loan: Income-based payment use .5% of the loan balance
  • USDA Loan: Income-based payment use .5% of the loan balance

Josh Lewis: Welcome back to the episode number three of find my way home live. We have a couple of special guests here in extra spec as they’re both named Scott. So hopefully that doesn’t confuse us all tremendously tonight, but we’ve got Scott Batey, one of our find my way home experts out of the state of Colorado.

Josh Lewis: And we have. My business partner, both in by wise mortgage and the founder of find my way home Scott Schang joining us tonight. Thanks for joining us, gentlemen, we have a topic that over the last 5, 6, 7 years has been one of the biggest sources of consternation for home buyers and confusion for loan officers and lenders.

Josh Lewis: And for various reasons, sometimes ignorance sometimes changes on the parts of lenders, but it is a big. Currently 46 million Americans have student loan debt. And for a total of 1.7, $5 trillion, you’d have to be living under a rock to not see the headlines of Biden’s gonna, let Cancel certain amounts of student loan debt for certain home buyers, or are certain borrowers, student loan, borrowers, and there’s pushback on the left thinks it should all be canceled the right things.

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Josh Lewis: None of it should be canceled. The answer may be somewhere in the middle, but tonight we’re not going to discuss that at all. We are only going to go through those of you who are in the. Looking to buy a home and you have questions regarding your student loans. We’re going to go through the history of the guidelines and why this really is an issue.

Josh Lewis: And one of the things we want to talk about is the price. Home-buying age is early thirties for your first time. Home, millennials are entering that prime home buying age and they hold the vast majority of the student loan debt. The government about what was it? Scott? 2008, 2009. 2010, maybe under the Obama administration, rather than say, Hey, let’s figure out how to not get kids burdened with so much student loan debt.

Josh Lewis: They came out with a way that they didn’t have to pay as much on the student loan debt. And that is the income based repayment, income driven repayment pay repay. There’s a plenty of different names that it goes under, but essentially what it means is you’re not paying enough on your loan to. Off. And at some point there will be forgiveness.

Josh Lewis: Scott, do you want to give us a little bit of an introduction of why that’s problematic for a lender, for you to have a loan with a debt that has a payment that won’t be paying.

Scott Schang: Yeah. You mentioned that we weren’t going to talk about forgiveness, but we have to talk about forgiveness a little bit because the primary reason somebody would take an income based payment or initially the reason people would have.

Scott Schang: It was because of what’s called the PSLF program, which is the public service loan forgiveness program. And it said, as long as you made on-time payments for 10 years, and you worked in some capacity as public servant, then you could have your little. Forgiven after 10 years. What most people don’t know is all student loans can be forgiven if you are making a payment on time for 20 years.

Scott Schang: And actually just a few weeks ago, they updated those guidelines. And they’re going to, they’ve actually shortened that time period for even more student loan holders that could have that debt forgiving. Earlier and this isn’t loan forgiveness. This is just clarifying and expanding the loan forgiveness part.

Scott Schang: So if you have. $300,000 worth of student loan debt, which sounds crazy, but it really isn’t with what we see on a pretty regular basis, at least six figures. You may not want to, especially just coming out of school, making those payments. So you’re right, Josh, they introduced this payment that was not enough to pay off the loan in full.

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Scott Schang: So in 2015, with the reverberation of the. Sort of the reverberation of the crash when we had all of these loan programs that didn’t, the payment wouldn’t pay off the loan. And every, so many people lost their homes because of that. But they called them toxic loans at that time.

Scott Schang: Around 2015 after. The market got on its feet again after 2008, 2009 all of the lender, the loan programs and we’re primarily talking about Fannie Mae and Freddie Mac, which are both conventional loan guidelines. And then you have FHA VA and USDA. And so that’s important when we’re having this conversation.

Scott Schang: So they all looked at this and they said, Man, there’s all of this outstanding student loan debt, and they’re not making payments to pay it off. So how do we calculate in the qualifying ratio of how much you can, how much debt you have to count when you’re calculating your, how much mortgage payment you can qualify for?

Scott Schang: How do we deal with.

Josh Lewis: It’s got the funny part or a funny part about that is these guidelines the income-based repayment programs kicked off around 2010 lenders had no idea. I dunno, their heads were just under a rock until 2015. So we’re going to talk about how the guidelines changed a lot from 15, 16, 17, even today.

Josh Lewis: 20, 20 and 2021, we’ve seen fairly big changes because there’s not really a right answer to how to handle this. And part of the reason why, if we had a purely privatized lending system, most mortgage lenders would look at this and say no way, I don’t want any part of that way, too much uncertainty, any number of things can happen.

Josh Lewis: But since the student loans are a government loan program, governance shared loan program. FHA VA Fannie Mae, Freddie Mac, also government insured programs. The government is saying, Hey, we better figure out how to, way to make this work. We’ve created a terrible system with lots of uncertainty and confusion.

Josh Lewis: But let’s make some rules. And that’s really where we’re going to go tonight is to talk through all of those rules. And depending on which type of loan you want to get what that what’s going to apply to you currently,

Scott Schang: and this is this is the crux of the problem because.

Scott Schang: All five of those lending guidelines, all decided to have different rules. And like you said, in 20 16, 20 17, 20 18, they all decided to change those rules. So until just recently, Depending on whether using a Fannie Mae or Freddie Mac conventional or FHA or VA or USDA, they were completely different guidelines for how you treated your student loan payments.

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Scott Schang: And that’s what caused the confusion. Both for consumers and especially for loan officers that weren’t paying attention to this the way that we were. And, they didn’t have a lot of experience. So they looked up one guideline and said, here’s your answer?

Josh Lewis: Why don’t we jump in and start looking at these in order Scott shank doesn’t actively originate.

Josh Lewis: So he doesn’t have as many real-world examples, but Scott Batey and I both are dealing with borrowers all day, every day. So when we have a Morgan to throw in some examples here of how it works and how it impacts borrowers and the dead ends they’re hitting and when that’s right and when that’s wrong.

Josh Lewis: But I always like to start the discussion with FHA, couple of reasons. FHA was historically the most difficult. They actually had an unofficial guideline prior to 2016, that was posted in an FAQ that says, Hey, you could use whatever’s on the credit report. And then one day they woke up and they go, that’s terrible.

Josh Lewis: We’re going to make you use 1% of the student loan balance. So if you have 10 or $12,000 of student. Not a big deal. It’s a hundred, $120. We see clients all the time, doctors, lawyers with two and $300,000 of student loans. So that doesn’t work so well. Scott beta you want to walk us through where FHA is now in the past, it was that 1%, 1% made it really difficult for a lot of the first time buyers who wanted to take advantage of the flexibilities of the FHA three and a half percent down, flexible credit guidelines.

Josh Lewis: And they weren’t able to, until some of the recent.

Scott Baade: And the strictness of the FHA plan that was even worse than the 1% is if they had a lower payment, they still had to use the higher of the two. So it was even more restrictive than what we have today. So the, for FHA in June of 2021 they updated the guidelines that aligned with one that we’re going to talk about later, which is Freddie Mac.

Scott Baade: They will let you use an income based report. Repayment plan unless that payment is zero and that’s where it can get tricky. Someone knows that they’re an income based payment plan. They’ll tell you that they’re in one. But if the number is zero FHA, doesn’t like that number you’re actually better off what they like a $1 payment than you are with a zero payment.

Scott Baade: And the reason for that is, is that. If it’s zero they don’t feel that’s adequate and they’re going to make us count a half a percent of the balance as the monthly payment for that particular payback

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Josh Lewis: and absolutely. For 1% to a half and the elephant in the room that we didn’t talk about on the way in, because we’re thinking bigger picture of the guidelines, we didn’t really get into the cares act.

Josh Lewis: And the reason why the cares act put this issue on steroids. So cares act for forbearance during COVID very quickly, the government came out and said, we’re putting a pause and putting all federally backed student loans into forbearance, which meant that everyone. Let’s say you owed a hundred thousand dollars.

Josh Lewis: You’re on an income based repayment and it was a hundred dollars. You’re going to see many of these guidelines would allow us to use that hundred dollars off of the credit report, but that went to zero. And as you just saw with FHA, zero is not acceptable. So a lot of the issues that borrowers are having right now are due to the fact that all loans are in forbearance.

Josh Lewis: All federally backed student loans are in forbearance and they all are reflecting a zero payment. In that instance that you just mentioned, Scott, if someone actually has an IBR payment, but their credit report shows zero, what are their options? Do they have to go to the half percent with the FHA or do they have another route to, to work?

Josh Lewis: They

Scott Baade: need to reach out to their student loan company and get what the payment is. They can actually have that payment adjusted to what it was. We’re seeing like right now, a lot of people just aren’t paying, even though they are in forbearance. A lot of times they don’t even know what they should or shouldn’t be doing.

Scott Baade: But as long as we have documentation that shows what the income-based repayment would be. If it wasn’t registering as zero, then we can use that.

Josh Lewis: And I don’t know what you guys are seeing or what you, Scott Beatty are seeing. A lot of the servicers, normally every 12 months, if you’re in an income-based repayment plan, you have to go back and recertify and show them what your current income is.

Josh Lewis: If your income’s gone up, they want you to pay more. They just stopped cause they’re like why are we going to do this? No, one’s required to make any payment. We’re going to leave that at that level. So it’s been somewhat of an issue. I’ve had a couple of clients that they were past, so they had the documentation, they go, Hey, I got a $225 a month IBR payment.

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Josh Lewis: And it says, yeah, but it renews in January of 2022. And we’re in February of 22. I don’t know what you’re seeing for the most part services on our end. They’re like, no problem. We’ll push it out 12 months. Here’s a new letter. They’re not actually having them recertify. Once Karen. Goes away if our president ever allows carer Zack forbearance for student loans to go away and makes payments come back that will be less of an issue.

Josh Lewis: You want to transition then there from FHA Scott

Scott Schang: what I also wanted to add in there is the reason why the administrative forbearance forced by the government was such a problem is because all five of the underwriting guidelines made you use a calculation. If the loan was in deferred or in forbearance.

Scott Schang: So administrative forbearance wasn’t really for bands because they weren’t. Payment plan. The government just refused to allow you to make payments unless you contacted, they didn’t give you a

Josh Lewis: choice. You couldn’t give me a

Scott Schang: forbearance. So if you were in a repayment plan prior to that, You’re saying most servicers or most lenders and underwriters are saying, okay, just show us what the payment was prior to the government turning it to

Josh Lewis: zero.

Josh Lewis: So we started with FHA because it’s used extensively by first time buyers because of its flexibilities and low. The next two options. We’re going to talk about our Fannie Mae and Freddie Mac. When you talk to a lender, they’re probably not going to talk to you about Fannie Mae or Freddie Mac. They’re going to just tell you it’s a conventional loan for the most part, the guidelines and the rates for those two loans are 99%.

Josh Lewis: The same income based repayment, student loans is one of those 1% things where they’re different. So Scott, maybe you want to jump through Fannie Mae and tell us how they’re currently looking at a income-based repayment student. Yep. And that’s

Scott Baade: this one caught me a little short right when the, when these changes made, because like you said, a conventional is used interchangeably.

Scott Baade: So typically you’re we almost always go the Fannie Mae route. That’s one that is just the more common route that we go. But the downside to the Fannie Mae program is if you have a zero. Dollar income-based repayment plan. They don’t like that either. They’re even stricter than FHA and they actually revert back to the the 1% plan.

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Scott Baade: So if the payment is showing zero again, a dollar is better than zero. So go back to the student loan servicer and get that. Get that payment figured out so that we can count that and get count that for you versus having to use the full 1%. Cause one thing I don’t know that we really mentioned is the average student loan payment is far below 1% or even below a half a percent.

Scott Baade: So we really want to be using the true student loan payment of possible or the income based payment plan versus the higher 1%, which Fannie Mae makes sense.

Josh Lewis: Absolutely. And again, all of these are going to come back to if you’re in the market to get a student loan, get ahead of this or get a mortgage and you have income based repayment, student loans, get ahead of it, reach out to your servicer and get the documentation of what your income based repayment plan is there.

Josh Lewis: So one of the interesting things is Freddie Mac, basically we talked early or that FHA. Mirrored Freddie’s guidelines. With that it’s a half percent that they’ll use. And one of the flexibilities there, Scott, much like you we do probably 80, 85% of our loans are going to go through Fannie Mae.

Josh Lewis: It’s a simpler automated underwriting system to use really when. Go to Freddie Mac. It’s just to see if their automated underwriting system will give us an appraisal waiver when maybe sometimes Fannie may want. But one of the interesting quirks is they use a half percent calculation and you may say I’ve got an income-based repayment.

Josh Lewis: I don’t care what calculation they use, but for a lot of our borrowers, if they’ve got 30 or 40 or $50,000 of student loans, that half percent calculation may not kill them. What might kill them is the 10, 20, 30 minutes, four hours, six hours, two weeks following up with their student loan servicer, and trying to find out how to get that paperwork.

Josh Lewis: So we’ve had a handful of clients where we just switched the file over, went Freddie Mac, and the half percent enabled them to qualify without providing us any documentation. And again, some of those clients that have very small student loans where they’re a $10,000. They can probably go Fannie Mae regardless.

Josh Lewis: It’s a a hundred dollars payment. A lot of times their debt to income will allow them to to absorb that.

Scott Schang: Yeah. So Josh, it looks like we have a question here from a viewer on YouTube, and this is really common. If the payment is not shown on the credit report but she does have a monthly payment.

Scott Schang: Is that acceptable? And how does she show proof?

Josh Lewis: It is acceptable, but it’s a specific letter, a lot of our clients have their servicing through fed loan. If you just go to fed land and say, I need a letter, they might give you a history of showing, Hey, I’ve been making these payments. It’s not about whether you were making the payments or not.

Josh Lewis: It’s about showing what the required IBR payment would be. If you weren’t currently in administrative forbearance. All of the servicers have been cooperative. I have yet to run into one that couldn’t provide the required documentation. But what you want to show is these student loan account numbers, because most of our student loan borrowers have more than one.

Josh Lewis: Some of them have consolidated down to one. 6 7, 10 loans there you want all of the loans listed. You want to share and say what the total balances are, what the minimum payment is and the income based repayment. And you want that date of when it is good through. Effective at least through closing.

Josh Lewis: So if you close on May 31st, it needs to be good through at least June 1st. And we’ve had them that tight and we have one little quirk with that with VA that we’ll get to in a minute. But Mary, to answer your question is yes, you can get the documentation from your servicer, regardless of what your credit report says, and then revert to the guidelines for each one of these programs of how they handle income based repayment, student loans.

Scott Schang: Yeah. Good question has a common.

Josh Lewis: So the fun one here is his VA. They went went a little rogue with theirs the viewing, the V they like math and they also, the VA guidelines are really vague on whether they will accept an income based repayment. We reached out recently, we had a client and went said, we’re not seeing the answer here.

Josh Lewis: So we called the regional home load center in Phoenix, where they will answer these questions for us. And we said, Hey, we have a client with income based repayment. We have the documentation, it shows it’s $178 a month. Can we use that? They said, no. Just has to be good for at least 12 months. I said you realize they actually go back every 12 months and have to recertify.

Josh Lewis: So it will never be. Be good for more than 12 months. And I shouldn’t say never because during the administrative forbearance, I had one get pushed off a year from before it was so that wasn’t a VA borrower, but it would’ve been the only one I’ve ever seen that was further than 12 months out.

Scott Schang: Isn’t it?

Scott Schang: 12 months from the first mortgage payment, though, not from an application. So it really 13 months. Yeah.

Josh Lewis: So anyway, you cut it. It’s like they’re saying, yeah, we’re cool with it. Just get us this thing that this purple unicorn. So if you can bring us a purple unicorn with your loan application. Yes. You can use that.

Josh Lewis: Do some math. So instead we’re going to get super creative. So instead of a half percent of your balance a month, 1% of your balance a month, we’re going to go 5% annually and then divide that by 12 to get back to the monthly. The good news is that gives you. Point four one six, 6%, which is the lowest of all of the calculations.

Josh Lewis: Still for veterans who have a lot of student loan debt, that can be problematic. The good news is because of the GI bill. We don’t see a lot of veterans with the big student loan debt. Like we do others, some of them come through, but they don’t tend to have quite as much now. Scott Batey for us here in Southern Cal.

Josh Lewis: In California in general, we don’t do a lot of USDA and out in Colorado. Do you guys have much experience with USDA?

Scott Baade: There’s pockets that do it. That’s typically not in our market. We have recently had one though that had student loan student loans and the half a percent that USDA allows didn’t get us to where we needed to be.

Scott Baade: They just didn’t call it.

Josh Lewis: Okay. So with that, the important part to know is USDA is just a hard, no, they’re not going to take an IVR payment. You can document it six ways to Sunday. They say, cool, don’t care. We want to see a half percent of the student loan balance. Do you know Scott? And again, in, in doing the research that Scott and I have done over the years of looking at this, I’ve never seen almost all of these programs.

Josh Lewis: If you can show a fully amortizing. Being less than half percent. They’ll generally take that. But half percent is usually a pretty good approximation. It might be a little higher, a little bit lower, but it usually comes in pretty close, depending. Those of you with student loans who might be watching this know, you can pick a repayment term, you can stretch it out as far as possible.

Josh Lewis: You can shorten it up if you want to get it paid off. So it all depends. For the most part, if you can document that you have a fully amortizing payment, like any other closed end installment debt, you should be able to use that monthly payment. Now this let me stop.

Scott Baade: I’m glad you said that, because that was my trick to get around all these calculations before the rules changed.

Scott Baade: And you can call your servicer. I need you to give me the lowest payment you can possibly give me. It needs to show that it pays off at some point, and it could be a 30. I think I’ve seen 30 year notes on student loans just to get that payment down low enough to where they could qualify. That is still an option, even with the income-based repayment plans.

Scott Baade: So don’t think that you can’t, that you just have to follow these guidelines. There’s other ways to lower your student loan payment.

Josh Lewis: And tell me this Scott, in, in your experience. How long does that process take? I mentioned that to clients in terms of, I don’t have time for that we’re in escrow or we just found the perfect house.

Josh Lewis: How long does it take to go through that with a servicer?

Scott Baade: I think it depends on how motivated you are to buy a house, but typically within a few days you can have a letter faxed to you that shows you this lower payment. So the motivated people have no problem getting it. It’s just a matter of putting in the groundwork or the legwork to do that.

Scott Baade: One thing I would add is if. You have student loans, you want to buy a house in the next six months or so, like Josh said, you want to get ahead of this. Now, if once that forbearance ends, the student loan companies are going to be slammed with people calling in and trying to figure out things out. So now’s the time to figure that out with your student loan company, before that forbearance.

Josh Lewis: Absolutely. Now I’m Lana. Let’s go to the free for all section of the show. When we talk about jumbo and portfolio lenders. So jumbo lenders are loans that are larger than Fannie Mae Freddie Mac FHA will do. We also can throw in non-qualifying mortgage lenders. Lenders that do fun, weird stuff, like bank statement, loans, debt, service, coverage, ratio, loans, and then also portfolio lenders.

Josh Lewis: You may have a local credit union that doesn’t sell their loans. They keep them a small local bank may keep their loans. And the cool thing is. They all get to make up their own rules with this. So the hard part is trying to give you an answer of exactly how they’re going to look at it. So within that big stew of different types of loans that I just threw out there, Scott, what are you seeing of options for anything less than one for.

Scott Baade: Th the ones I see that and the negative, the most questions on, in that, that, that jumbo or outside of the Fannie Freddie FHA VA realm is doctor loans. Doctors obviously have a ton of student loan debt. There are certain lenders out there that will ignore the student loan payments, at least for the time being on the qualify I’m without those student loan payments, counting on that.

Scott Baade: But that is very specific to that industry. You have to have a job that you’re going to and they’re just counting on you make enough money down the road to where you’ll be able to pay back those loans. But that’s one of the few that I’ve seen that you can actually essentially ignore the student

Josh Lewis: loans.

Josh Lewis: One of the things that we’ve seen post COVID. So prior to COVID, we were getting more and more jumbo options. The market was opening up. People were doing different things. COVID shut that down by the end of 2020, that market started to thought. And now we do have. A handful. I wouldn’t say a lot, but I would actually say most wholesale lenders, most big national lenders have jumbo programs that will follow the Fannie Freddie guidelines.

Josh Lewis: So the guidelines that we went through earlier now, those loans may not have the best jumbo term. But they’re more flexible because they’re following Fannie Freddie guidelines. What I can say is the lenders that we have access to that have the absolute best terms on jumbo are incredibly strict on the student loans.

Josh Lewis: Most of them will fall back to that 1%, unless you can show a fully amortizing payment, which might take you Scott, back to the option that you were talking about of just getting a 30 year amortizing payment and decreasing it. We had a couple of other things to consider. So in, in general did either of you guys have anything to add just in terms of the five major loan types of how they handle student loans or anything that you think our viewers might want to hear?

Scott Baade: Okay. The, for me, the big thing is I think there’s still underwriters that are learning this. Make sure that the loan officer that you use is really aware of these nuances between the programs, because it’d be very easy for an underwriter to say, Hey, this is a conventional loan. It’s going to be 1%, not even thinking about Freddie Mac and a half a percent.

Scott Baade: So be your own advocate while you’re doing this as

Josh Lewis: well. Don’t take no for an answer. If you talk to three people and all three of them tell you, no it’s possible, you might be getting to the right answer. The reason why those of us in the find my way home expert network deal with this a lot is that Scott and I started writing about this six or seven years ago.

Josh Lewis: So there’s a ton of traffic. We have a lot of Google juice. So when people get told a crazy answer by a loan officer and they start Googling it, our stuff pops up. I had a client just yesterday. Tell me he’s been. He’s actually a doctor. So we have additional options besides just our normal IBR stuff only wants to buy a $450,000 house.

Josh Lewis: It’s like easy slam dunk. And he’s been working with the lender for 30 days and they keep coming back and telling him they need more documentation to be able to determine what his full payment is going to be. And we could go on and on with stories of just people being told the craziest stuff.

Josh Lewis: I have a house that I have. Finding out flipping last year market ended up good rents, went up. We ended up with a bunch of equity in it. So we kept it. I have a lovely couple comes in one day and I started talking to him like, why are you guys looking at renting? You should buy. And they go through the situation with their student loan and they go, oh, we have too much in student loans where you got to use the 1% and we don’t qualify and go.

Josh Lewis: Who told you have to use where our loan officer? Who’s your loan officer? Ah, it’s. Okay. We got a family problem here, cause your brother’s dumb. So in the nice way, I said, unfortunately, your brother’s like a lot of loan officers. They’re just not familiar with the guidelines. We went through it just the same conversation that we’re having here and.

Josh Lewis: Unfortunately, I didn’t get to rent to this lovely couple because they were able to go buy a home. And I also didn’t get to do that alone. Cause I explained it to them well enough to sharp people, that they went back to their genius brother and said, Hey, dummy. Here’s how we do our alone. And they were able to buy.

Josh Lewis: And instead of having to rent and, that was late last year. So they got into a home, got some appreciation and missed out on this giant spike in interest rates,

Scott Schang: along along those lines, Josh, there are also some underwriters that just really refuse to read the guidelines.

Scott Schang: Choose to interpret them. See, most underwriting guidelines are not black and white rules. They’re guidelines and you have to read into them. And sometimes what it doesn’t say is as important as what they do say. And Scott you had a scenario we had. Somebody called me off of find my way home.

Scott Schang: She was in escrow. She loved her loan officer and she kept explaining this scenario to her, why she couldn’t use her student loan payments and how she wasn’t going to be able to close on this house because of her student loan payments. And I just kept scratching my head and I was. That does not make any sense to me.

Scott Schang: You should be able to follow this guideline. And she went back to her loan officer. She came back and she said, the underwriter said no. And I said, I need to introduce you to somebody that I know in Colorado and tell us how that coversation.

Scott Baade: We got the call or I think you told us she was going to be calling in.

Scott Baade: She did call in my, my wife and business partner and I were on a conference call with her. And same thing you just said, she absolutely loved her loan officers. She’d been working with her for months. But for whatever reason, I don’t know if it was a company policy as an underwriter. If they only sell their loans to Fannie, there was something that was keeping them from.

Scott Baade: Lowering her student loan payment to what the guidelines are. Once we explained to her that we’ve done this before that’s why we’re in the find my way home network. We were able to, we got our loan applications. She was buying the house that she was living in. We had our clothes within just a few weeks and now she’s a happy homeowner.

Josh Lewis: Yeah. The funniest, amazing thing about this is like, when you know the guidelines, these are really easy loans. You almost feel like stealing, like you took the candy from the baby because you have this infant loan officer over here that has no idea what they’re doing and you go, okay, you don’t know how to eat that candy.

Josh Lewis: I do. So there’s some guilt with it, just a little bit for a small second, but it really, I am amazed, Scott Shang you and I. Was about 20 17, 20 18 when they got the guidelines dialed in where you, and I said that’s the end of the gravy train. Most, any semi sentient loan officer should be able to do this.

Josh Lewis: And yet here we are four or five years later, still getting multiple calls every month from people getting misinformation and being told no when they absolutely qualify. And the thing is. There’s two things that can happen in bad in terms of getting wrong information. When you talk to a loan officer, one is a false positive.

Josh Lewis: You don’t qualify and they tell you everything’s great. You get into escrow, you make a deposit, you pay for an appraisal and a spectrum. It gets to the end and we go, no world, did you qualify? That’s bad. A false negative over the last two years could have been equally bad. Let’s say. Late 2020, you want to buy a house, you get to the wrong loan officer.

Josh Lewis: They say, oh, I’m sorry, you got student loans. You don’t qualify. You would have missed out on about 30% of appreciation. And instead of having a 3% interest rate, you’re looking at a five and a half percent interest rate or a 5% interest rate today. So there are real costs to not getting good information.

Josh Lewis: I tell people. I am never going to be mad at you for shopping the worst examples of people getting taken advantage of getting false, positive, or false negative answers from a loan officer or the person that called and talked to only one person. It’s also the same for getting really bad terms for you.

Josh Lewis: So bad answers, bad terms. And the actual Scott, I don’t know if you remember the exact number, is it 72 or 76% of borrowers will do a loan with the first person that they talk to. Hopefully

Scott Schang: it’s even higher than that, but yes. Yeah.

Josh Lewis: Hopefully the first person you’ve talked to is great. What I can say is our industry is a full-blown 80 20 industry, 80% of the people.

Josh Lewis: Average to awful. And you don’t want that. You truly don’t want that you would be shocked and amazed at the things that we see loan officers doing on a daily

Scott Schang: basis. And quite frankly, for that specific reason, that’s why we see. Find my way home. And that’s why we got experts like Scott, you and a bunch of other people on here because the consumers options are limited to the experience of the person that picks up the phone.

Scott Schang: And if 75 or 80% of the people are only going to do business with the first person that picks up the phone, you assume when you call the doctor’s office, that they understand medicine. So there’s really no reason for you to think otherwise. But when you find out that they don’t know. That’s when you have find my way home.

Scott Schang: And and the overwhelming majority of our tens of thousands of visitors a month have been told no, or given misinformation or multiple answers from multiple lenders and they go on Google and they’re like, there’s got to be. There’s gotta be an answer to this, right?

Josh Lewis: One Scott, one of the things that we talk about, one of the worst things that’s happened in the mortgage industry over the last 15 to 20 years is the McDonaldization of mortgages.

Josh Lewis: We have giant national lenders with massive call centers that they’re loan experts that they’ll tell you our loan experts just went through a six week training class coming out of a job at 24 hour fitness or GNC or. Pizzas. And I’m not kidding. You can look this up in the NMLS and see their per their license number and their ten-year self-reported work history and see where they were working six months ago.

Josh Lewis: And because the marketing is so pervasive and so good and slick. If you look at these ads, they’re really good ads. If they were actually delivering the promises they make in the ads, it would be awesome and wonderful, but there’s no such thing as push button and get mortgage. That’s a topic for another show, but the reason is this is a highly government regulated industry.

Josh Lewis: Should it, could it be much better, easier? Definitely the technology exists to make customized mortgage decisions for everyone. But housing is really sensitive. You have racial disparities inequality, any number of things that we have to paint with broad strokes. Versus getting granular down to individualized decisions.

Josh Lewis: So we have, and we’re in the middle of it right now. You’re seeing better.com meltdown and they will be gone within a year or two. If they survive this, I will be shocked, but a giant mortgage company, venture capital backed with really smart people. And I mean that honestly really smart people go, that’s a dumb industry, I’m smart.

Josh Lewis: I’m going to fix it. And then they get in the industry. Maybe it’s the government regulations making the industry dumb. The messaging that you see that it’s so easy to call the banner behind home plate on the baseball game or the advertisement on the radio or on ESPN or on the billboard.

Josh Lewis: This stuff is not rocket science. I am not a rocket scientist. I’m not a genius physicist or chemist, but it’s fine. Mustache. I do have a fine mustache for today. It may be gone tomorrow, but it was fun for today. But with that, our business is really complex. And if you don’t have an eye for detail and an ability to view that complexity and 20 something years, and it doesn’t take 20 something years, but it takes five plus years before all of the things to look for.

Josh Lewis: I, and I’m sure there’s an exception to every rule. You can show me someone that’s been in the business for 18 months and is great. We have a friend of ours, Kyle that’s been in it for three or four years and is spectacular. But it just takes time and seeing files and having an eye for detail and that concern for getting the right answers and in a call center, it is purely kill them all.

Josh Lewis: Let God sort them out. It’s do the best marketing to generate as many leads as possible and filter out the easy ones and let your kids in the call center, get those closed.

Scott Schang: And this might Mary had a fight. Question, which brings up another really good point because there’s not always one answer.

Scott Schang: Scott, Mary was saying, if you could repeat again how to lower the student debt the student loan. By extending the term, but there are also some real negative aspects to refinancing your loan and recapitalizing that interest on that loan. That is an option.

Scott Schang: Absolutely. We also we work with a a company who basically she’s a millennial who started this company. Literally because of all of these challenges, because what she said is the overwhelming majority of. The student loan holders or our student people that have student loans are just given one payment option and they don’t always know their options.

Scott Schang: This company has called loan sense. I don’t know Josh, if we can put it up if we can put it up there, it’s. My load sense. Yeah. My loan sense.com and what they specialize in is not refinancing your loan, but right-sizing your loan. And that’s almost always putting it into identifying if you ha, if you qualify for loan forgiveness, and then getting you into an appropriate income based payment that you can afford.

Scott Schang: Until you qualify for the loan forgiveness and they assist with all of the paperwork. And actually they specialize in helping people get into these loans or get their loan done before the. Before the loan closes. So if you start the process, it takes them maybe a couple of weeks and they negotiate with your servicer.

Scott Schang: They do all the paperwork for you. So there are different options there. One option is refinancing. We amortizing another option is taking your existing loan and just putting it into a different payment structure, which is maybe going from amortized to into an income-based repayment. So yeah there, there are a couple of different ways to do it.

Scott Schang: I would recommend you talk to somebody on the, find my way home network and figure out what those options look like. Because again, this stuff is complex. There’s a lot of moving parts. Scott

Scott Baade: has forums going. You could go back to the service or, and actually talk to the representative and say, I need to get the lowest payment possible.

Scott Baade: And how do I do that? And they’ll tell you how to do it. The one thing is that’s also not a permanent you don’t have to do that permanently. You can just do it until you get your mortgage and then go back to what you had. So it’s all you’re doing right now is lowering your payment to get into a house.

Scott Baade: And then once you get into that house, then you can go back and figure out how you actually want to pay.

Scott Schang: You just probably want to make sure that the it, the, if it’s, if your intention is to do it temporarily, that it’s not stated anywhere on any documentation, we’ll want to know that’s what your payment is.

Scott Baade: No. I told someone to, go contact the servicer, tell me what the lowest payment possible. And they were worried that was going to lock them into that. I just want them to know that it was a temporary it’s as permanent as you want to.

Scott Schang: If you want to go back and plus, if you have a minimum payment, you can put it, you can pay double the payment.

Scott Schang: If you want to pay off your student loan payment, you can make any payment you want. We’re really just talking about for the purposes of qualifying for a mortgage. What is the underwriter and the lender need to see in order to quite frankly, give you enough purchasing power to qualify for that home.

Scott Schang: Just like the story. Josh has renters that he lost, but he did the right thing. So I’m very proud of you.

Josh Lewis: You can’t throw all the starfish back in the ocean, but for the ones that you do, you made all the difference in the world. And I’m sure when I was taking my little two-minute vacation, when my internet went wonky here, you guys, there’s this link on the screen for my lawn sense, I would talk to or tell anyone who has student loans.

Josh Lewis: Talk to these guys. It’s a complex situation. We just talked about why it’s important to get with an expert loan officer. I don’t know that there are a lot of experts in the student loan field. If you have a significant amount of student loan debt, and you want to make sure you’re getting credit for all of your payments or the forgiveness, if you’re minimizing the payment as much as possible for qualifying for a mortgage, if you’re making sure you’re not doing something that costs you more in the.

Josh Lewis: You want to talk to experts? So it’s

Scott Schang: the dangerous thing. Josh is that loan census more of is more of sort of a consulting a counseling company. They’re going to counsel you. There is a small cost if they want, if you want them to do all the paperwork for you, but they’re. You think it’s bad trying to try to go out and get call center lenders?

Scott Schang: The same plague affects student loan refinancing companies, because those companies make a lot of money by refinancing your loan. And they’re. Doing you any favors, but in most cases they’re charging you a lot of money. They’re costing you a lot more money in the long run. So it’s it’s it gets pretty, it can get pretty pretentious out there.

Scott Schang: You can get pretty scary. So Josh, we talked about all of the we talked a lot about how to qualify, how to use each program. What are some other things we need to consider out there. What if you missed a payment or what if you went into default on a student loan w what are some of the scenarios that you’ve run across that, get it even a little bit more.

Josh Lewis: Scott BD. I don’t know how often this comes up for you. I do see a lot of clients. Who’ve had significant issues with their student loans in the past. Usually by the time they’re looking to buy a home they’ve got them figured out and got them brought current. A lot of times I will see.

Josh Lewis: Eight student loans that were late for four years in a row because they graduated. Didn’t realize that the payments had started addresses or bills are going to mom’s house, whatever. And they wake up, they go, oh my God, what happened? And they get back with the servicer. They consolidate them and bring them current.

Josh Lewis: And so the credit score is decent and we’re able to do the loan. But Scott, do you see much of people actually with current issues and late payments and problems with their students? Not

Scott Baade: so much to your point, people will see that they were paying, they didn’t pay for three, four or five years.

Scott Baade: A lot of people think that’s an anchor around them right now. And it’s not like you said, they got caught up there. They’re in the good graces of the student loan company. They’re fine. They can most likely buy a home. If you, that, the one good thing about forbearance, those people that were late for four years, all of a sudden they got current, all their credit scores got good.

Scott Baade: So a lot of those folks. Didn’t make a house payment for four or a student loan payer for four years. They haven’t made one for the last two years, but the credit’s good student loan payments are showing at least on time. So some of those folks are getting into homes that otherwise wouldn’t but if you have a one-off here or there, you’ve got to make a payment that’s not going to kill you either.

Scott Baade: So as long as you’re mostly good and your credit score is good, you should be able to qualify. The one thing would be is if you did default on a federal state, That could affect your ability to get an FHA loan. We just had someone call us about two weeks ago. Their deal was falling out of there to another lender and it turns out they had a defaulted student loan a little over right around three years ago.

Scott Baade: So they were calling in a panic, trying to figure out and it actually that call came in through the find my way home network, like you said, Google and for answers because stuff didn’t sound right. And no one had mentioned that the system that lenders use it’s called cabers in this gamer system.

Scott Baade: If you’ve defaulted on a student loan, it is to prevent the government from lending you money from other sources. I may not know about it. So all federal lending agencies use this system to make sure you haven’t defaulted on a federal debt in this case they had and they didn’t qualify for conventional.

Scott Baade: So they last I know they stuck with their loan officer, but they were able to go back to that loan officer with a lot of questions and a lot of ammunition that I gave him to go back with that. So if you defaulted. You could have also defaulted and that won’t even show up on that report.

Scott Baade: But it does mean that you do need to talk to a loan officer that understands the ins and outs of that.

Josh Lewis: And I don’t mean to sound bitter Scott, but I will say. It’s all three of us. How many times have you given someone a roadmap to go back to their loan officer? And I get it from the consumer’s perspective, you don’t want to start over in the current market.

Josh Lewis: Like now where rates have gone up, starting over can cost you a chunk of money. So I am happy to get the consumer, the right outcome, but it’s not fun to reward a loan officer. It doesn’t know what they’re doing with their. Getting online, doing the research, having the conversation with one of us and getting the details and going back going, Hey, here’s the roadmap to do your job, buddy?

Scott Schang: Th the one thing I wanted to, to maybe add to this is if you defaulted in the past, and then you re negotiated a repayment plan. Later afterwards it is it’s pot. And sometimes that cavers alert is still on there. So maybe you want to make sure if you are in a repayment plan, but you still have this default, especially now the last two years, I don’t really know how you would deal with that.

Scott Schang: But if you’re, if you defaulted, but now you’re making payments same sort of thing with like tax liens. Okay. As long as your can show you’re in a repayment plan and you’ve been making payments in on time it’s possible to get, take that to cavers and say, no, I’m making the payments and they’re on time and they could, they could potentially remove that alert and allow you to move forward.

Scott Schang: You just have to show that you’re back on.

Scott Baade: Just because you show up in that report doesn’t mean you’re done. There’s more work to still be there. You

Josh Lewis: still have. We had one last week that showed up that it was actually identity theft. Someone had taken the student loan out for a veteran and they were trying to come do their VA loan and they had to go back to caver.

Josh Lewis: So it’s going to take a little bit of. Proving to cavers that he didn’t actually go to college somewhere in the mix, take out the student loan that he never paid. But it was an interesting one. He

Scott Schang: didn’t go to Berkeley while he was deployed overseas. He did. He did not. Okay. That’s good. But that’s to your point again, Josh and no, you don’t sound bitter because we are biased.

Scott Schang: We are on the receiving end of hundreds, if not thousands of consumers that have been given wrong information, and it’s not just that they’re misinformed, they could just be new. They could also just be lazy, they just don’t want to put the work in and do the hard work to try to figure it out.

Scott Schang: There’s a lot of folks out there that are just like, Is this easy? Is it easy? It’s hard. I’m not going to do it. Is it easy? Is it easy? And if it has, and if there’s any sort of thinking that’s involved it’s important to know. And the reason why we do this is to build awareness, to let people know that there are people like Scott and Josh, that.

Scott Schang: Professional loan officers with years and years of experience that are more than happy to answer your questions and walk you through and guide you through some of these decisions. We’re not, we have this affliction where we don’t like to hear no, we’re like, I’m going to beat that thing to death.

Scott Schang: I’m going to track this thing down to the ends of the earth until there is no more guidelines for me to review.

Josh Lewis: And the guy, the fun thing is the guidelines are always changing. So you can think, him. And the funny thing from that perspective, I’ll tell anyone that will listen.

Josh Lewis: And even those that won’t, I trapped them and make them listen. In the nineties, we had a giant bookshelf with. Four inch three ring binders. That was where you had to go. There were no such thing as PDFs and Google and all that fun stuff. So you would sit there in the office and go through the binders.

Josh Lewis: Now we Google it. You go to the lenders websites, you go to the agency’s websites, you can search it, you can hit control F in the PDF. And next thing there’s the guideline you’re looking for, but

Scott Baade: that’s one of the things that you guys have done really good with find my way home is like you said, Scott, the guidelines are still not written really.

Scott Baade: So you guys have done the leg work. You’ve gone out there and you’ve actually gotten answers from the agencies. If they’re not clear and you’ve made it in an easy to digest, readable format that a layman can understand. And that’s why I think you have so much traffic to the site. You’re taking something that’s very difficult and it’s still difficult.

Scott Baade: You’re just making it so people can understand it. I think that’s the real value.

Scott Schang: Yeah.

Josh Lewis: So

Scott Schang: I think we’ve covered this

Josh Lewis: topic, Josh. I was, as exactly as that, I think we’ve covered the topic. We’ll be back next week with more experts and more conversation about topics that are impacting people in the market to buy and finance homes.

Josh Lewis: If you have questions, if you’re watching this on the replay if you see it on YouTube, you see it on one of our. Pages, there are questions in the comments. If you’d like to see a topic covered we’re always open and looking to go through things we primarily go through what gets the most traffic on the website, the most problems that we’re seeing.

Josh Lewis: But we’re absolutely opening open to any questions that you may have. So Scott and Scott, thanks for making everything confusing for all of us tonight by sharing a name. But we appreciate you being here. Appreciate you sharing your expertise and until next time, we’ll see you. Thank you so much.

About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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