It seems obvious that having student loans would making purchasing a home harder.? The surprising thing is how negatively student education loans can impact the opportunity to purchase a home, even in the case of a co-signer.
One Family’s Story
I just been told by a reader who had been applying for a mortgage.? She’s one daughter who’s in her own first year of school in a state school.? She is a cosigner on some student loans, but a relatively bit.? The lengths the lender went through over this relatively small amount of student education loans were amazing.
For people not familiar with the mortgage process, one of the important aspects that companies look at is often known as your “tailgate end ratio”.? This number looks at the amount you currently owe on all of your debts (charge cards, automotive loans, student loans, etc.) for your monthly income.? When the amount your debt is simply too large when compared with what you make, you won’t obtain a loan.
The shocking part about this example is when the company treated the cosigned loan.? They insisted upon a 3 way call between your perspective borrower, the lender, and also the student loan lender.? The lender desired to know precisely exactly what the monthly obligations around the loan would be in 2019, assuming that no payments were made for the next five years.? The mortgage company then took this inflated number and plugged it in to the tailgate end ratio to examine the loan.
This is shocking for a number of reasons:
- The student education loans were cosigned.? Unless this reader’s daughter does not pay her student loans, your reader will have no obligation whatsoever.
- The mortgage company manipulated the numbers to inflate a student loan figure as much as possible (this practice is highly unusual and doesn’t happen with other types of debt).
- Mortgage companies don’t usually insist on talking to the other lenders that show up on your credit report.
Based this information, it appears as if the lender saw a cosigned education loan, a daughter attending college, and attempted to find any excuse they might to deny the borrowed funds.
After discussing this situation with an attorney that has been doing property work since the 80’s, he earned a prediction about where things were headed:
During the 80’s when interest rates were skyrocketing, mortgage companies often would insist when the home sold, the entire value of the mortgage was due.? They were attempting to avoid a kind of sale called a land contract.? The advantage of the land contract would be that the new buyer can purchase the house in the low interest of previous owner.? We rarely see them today, in part, because interest rates tend to be lower.
This history lesson is important because it set a precedent.? Mortgage companies can insist upon full payment of the loan based on future conditions.
The reader’s story shows the growing fear mortgage companies have over student loans.? If the current approach doesn’t do enough to deal with their concerns about student loans and future obligations, they might start writing a new term into the mortgage agreement.? They might say that if you cosign an education loan, the entire balance of the mortgage arrives.? In effect, they might prevent parents from cosigner for their children’s education loan if they are still paying off their home.
The good news is that this practice hasn’t started.? Unhealthy news is that this country has a trillion dollar student loan problem and it is getting worse through the year.? Following the mortgage crisis and recession, many lenders won’t sign off on the risky mortgage.? As student loans be toxic within the eyes of bankers, they’ll make buying a house progressively more difficult.
What does this mean for you?
It means that cosigning for student loans is becoming increasingly more risky.? For families with students still attending college, it is advisable to find methods to avoid cosigning on loans.
If you have already cosigned financing, it means it’s time to start planning ways to get taken off the borrowed funds.? For starters, you can send this email to your lender.? If conventional means at getting released from the loan don’t work, you can always try some less conventional options.
Readers: Have student loans gotten when it comes to your mortgage?? We would love to learn about it as we track this developing situation.?