Installment Loans Without Monthly Payments On Credit Reports

Installment Loans Without Monthly Payments On Credit Reports.   It is not unusual to have Installment Loans reported on a Credit Report without a monthly payment.  But just because an Installment Loans does not have a monthly payment on the Credit Report does not mean a monthly payment will not be assigned in determining the Borrowers Debt-To-Income Ratios in qualifying for a mortgage.  As a result these Installment Loans reported on a Credit Report without a monthly payments can have a significant impact on a Borrower's Debt-To-Income Ratios if not handled correctly

This is an Underwriting Guideline not very well known by those outside the Lending Industry, but it is one which can blow a Borrower's Debt-To-Income Ratios out of the water.  The reason why Installment Loans without a monthly payment listed on the Credit Report can be a major problem, is because if a monthly payment is not listed, and one cannot be obtained from the creditor, than 5% of the balance is what the Underwriter will use as the monthly payment.

Where we see this the most is with Student Loans that have not gone into repayment yet, but will go into repayment within 12 months of the Mortgage Closing.  So let's say the Borrower has even a small Student Loan for $5,000 (yes these days that would be a very small Student Loan) the Underwriter would use 5% of $5,000 as the monthly payment, which would be $250 per month.  That amount is far more than what the payment will really be when the Student Loan goes into repayment, which will be closer to $50 per month.

This issye can be easily resolved by the Borrower contacting the provider of the Student Loan.  Usually that would be Sallie Mae, or the US Department of Education, and getting them to provide in writing what the monthly payment will be once the Student Loan goes into repayment.  Sounds easy and it normally is easy, but every once in a while the Borrower does not follow through, or asks for the information correctly.  When this happens the Closing is delayed, or worst the mortgage is denied because the Debt-To-Income Ratios exceed the Loan Program Guidelines.

Installment Loans Without Monthly Payments On Credit Reports can be a major issue, but it is an issue which can be eliminated quickly if addressed early in the Mortgage process.

 

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com