Bri Lacy, an attorney in Florida, was ready to purchase a home. She contacted her lender to get pre-approved for a mortgage. But there was a problem — her federal student loans were in an automatic forbearance due to the CARES Act, and having no student loan payments due was unacceptable to her mortgage lender.
Lacy explained, “I don’t have a billed amount. Even though I have documentation that says what my monthly student loan payment is under an income-driven repayment plan if I was not in forbearance, the underwriter of the mortgage loan uses a 1% [of the student loan balance] figure to determine my monthly student loan payment.” As a result, the mortgage lender concluded that Lacy’s student loan payment is hundreds of dollars higher than what it actually would be if she was not in the CARES Act forbearance.
“I’m quite bummed,” she said. She said that she can either choose to pay much higher payments than she needs to right now under the terms of the CARES Act, just to be qualified for a mortgage, or she may have to wait and potentially miss out on some of the lowest mortgage interest rates she has seen in years.
CARES Act Forbearance And Mortgages
What exactly is going on here? Rory Gill, a real estate attorney in Boston, explained.
“The CARES Act administrative forbearance can be both a blessing and a curse,” Gill said. “For those who need the reprieve, it can be an opportunity to save, or a short-term financial savior. For homebuyers, though, it can have disastrous consequences for mortgage loan eligibility.”
Student Loans And Your Credit Score: Qualifications And Impact
Gill explained, “Most lenders will use the actual monthly student loan obligation in [mortgage] underwriting calculations — unless that number is zero.