The Massive Transfer: After 4 levels, I’m virtually $ 600,000 in debt. Can I nonetheless purchase a home?

"The Big Move" is a new MarketWatch column that aims to answer questions about navigating the real estate world.

Do you have a question about buying or selling a home? Do you know where your next step should be? Email Jacob Passy at

Dear MarketWatch,

I am a 58 year old black male with a student loan debt of $ 593,000. Seriously. I have 4 degrees – B.A., J.D., M.Ed., M.A. – and working on my last Ed.D. I am currently employed as an educator.

I'd love to buy a home, but qualifying is like a breeze
the sky. I'm working on a deposit
from $ 12,000. But any mortgage company
will tell me they have to count towards 1% or 0.5% of my loan balance against my debt. I want to buy a house in July 2021. I am currently renting for $ 1,390 per month.
Any suggestions?

Sincerely yours,

A well-educated potential home buyer

Dear well-educated,

I have good news and bad news for you. The good news is that student debt – even close to $ 600,000 in student loans like you do – doesn't inherently prevent someone from taking out a mortgage and buying a home.

"We're not concerned about that from a mortgage standpoint
All in all, we don't care if it's $ 100,000 or a million. All we care is
about the commitment on a monthly basis and how that affects their ability
Carry the mortgage they're looking for, ”said Ryan Leahy
Sales director at Massachusetts-based lender Mortgage Network.

The bad news, as you seem to know, is the pandemic
has complicated the process by which the mortgage lender determines whether someone
Having student debt is creditworthy and can bear the burden of paying its
Mortgage every month.

They don't mention what type of student loan you have, as in whether it is private or federal. That makes a huge difference in how the underwriting on a mortgage would work now. Under the CARES Act, payments on certain federal student loans have been frozen, although approximately $ 165 billion in student loans from commercial lenders are ineligible for this leniency.

In August, President Donald Trump announced that he would extend this leniency for student loans until the end of the year. While this relief will certainly be welcomed by many borrowers who lost their jobs during the coronavirus crisis, it does cause some headaches when a borrower tries to get approval for a mortgage.

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Mortgage lenders need to determine a borrower's debt-to-income ratio
Ratio during the drawing process to determine how much a budget could do
afford to pay a mortgage every month. "How these debts are valued by
Lenders depend on the type of loan, ”said Mark Milam, founder and mortgage lender
at Highland Mortgage, a Georgia-based lender.

Typically, lenders obtain this information from an applicant
Credit report. So when a person typically pays $ 400 a month, for example for
then a lender would use this to determine their debt
Debt to income ratio. And in those cases, the lenders wouldn't worry
Total amount of student debt someone has.

But forbearance makes it harder. "If we a
Credit report on that person, or any other person, would usually hit it back
than zero dollar payment at the moment because most people are indulgent and
These federal loans don't have to be paid back, ”Leahy said.

Lenders have a few options on how they can move forward
This situation is determined by the type of loan an applicant would get. Fannie
Mae requires lenders to look at the full debt of students and calculate what
1% of that would be and treat that as the monthly payment amount for
their underwriting calculations. Freddie Mac, however, only needs
0.5% of the loan balance for the same calculations.

With FHA loans, lenders can do it a little differently
Ways. You can choose between 1% of the credit balance or the credit report
specified monthly payment, whichever is higher. Or they can use the real one
documented payment from the servicer when the loan is fully amortized
the term. For the most part, Milam said, FHA lenders add the debt burden
the 1% number.

"The people at the top determine how everything is done below," said Brent Chandler, founder and CEO of FormFree, a borrower data and analytics technology company. "If the investors who buy loans from [Fannie and Freddie] haven't changed their models or the way they look at data, everyone below must take the same steps that investors are used to."

Of course, in your case, even 1% of your student loan would appear like a massive monthly burden that could prevent you from qualifying for a home loan. However, you can provide your mortgage lender with additional documentation to aid your case.

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When the forbearance ends, there is a good chance that you will be setting up an earnings-related repayment plan with your student loan debt servicer. In this case, the servicer will check your income to see how much you are paying on your student loan each month. Since you are still in school, chances are these payments are quite low.

What you can do is get what you expected in writing
Payments are made when the grace period from your servicer ends. You can
Then provide this documentation to your mortgage lender and they can use yours
new payments instead of the percentages.

You mention that you work as an educator. That means that if you work in a public school, you could qualify for lending, although that program could end. In such a case, your student loan service provider could actually say you don't have to make a monthly payment, and mortgage lenders can use that information as well.

However, you mentioned that you have no plans to buy yours
At home until next summer. And things could easily change in the meantime
in particular depending on the results of the elections on November 3rd. So what should you?
in the meantime do?

The mortgage experts I spoke to said all of this
If you are the same, putting money into savings now is a good idea to grow
Your deposit. But if you have other debts, especially those with debts
With large monthly payments or high APRs, it can be beneficial to repay them
in the meantime.

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