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Conventional Updates

Updates to LPA Student Loan Payments and Student Loan Cash-Out Refinances

Loan Product Advisor (LPA) Student Loan Payments:

In accordance with Freddie Mac’s selling guide update, New Penn Financial is updating our conventional product profile with changes on the requirements for inclusion of student loan debt in the monthly debt to income ratio.  Section 6.6 of the Conventional product profile has been updated with the following:

  • Student loans in repayment use the greater of:
    • The monthly payment amount reported on the credit report, or
    • 0.5 % of the original loan balance or the outstanding loan balance, as reported on the credit report, whichever is greater
  • Student loans in deferment or forbearance use the greater of: 
    • The monthly payment amount reported on the credit report, or
    • 1% of the original loan balance or the outstanding balance, as reported on the credit report, whichever is greater
  • Student loan forgiveness, cancellation, discharge and employment-contingent repayment programs
    • The student loan payment may be excluded from the monthly debt payment-to-income ratio provided the Mortgage file contains documentation that indicates the following:
      • The student loan has 10 or less monthly payments remaining until the full balance of the student loan is forgiven, canceled, discharged or in the case of an employment-contingent repayment program, paid, or
      • The monthly payment on a student loan is deferred or is in forbearance and the full balance of the student loan will be forgiven, canceled, discharged or in the case of an employment-contingent repayment program, paid, at the end of the deferment or forbearance period, AND
      • The Borrower currently meets the requirements for the student loan forgiveness, cancellation, discharge or employment-contingent repayment program, as applicable, and there are not any circumstances that will make the Borrower ineligible in the future

 

Student Loan Cash-out Refinances (DU Only):

New Penn Financial is pleased to announce that Cash-out refinances used to pay off student loan debt and scored through Desktop Underwriter (DU) maybe be eligible for Rate and Term Refinance pricing.  The following requirements must be met: 

  • Refinance purpose type must be “Student Loan Cash-Out Refinance” in Destiny
  • DU Scored only. DU will issue a message when it appears that only subject property liens and student loans are marked paid by closing.
  • At least one student loan must be paid off with proceeds from the subject transaction with the following criteria:
    • Proceeds must be paid directly to the student loan servicer at closing;
    • At least one borrower must be obligated on the student loan(s) being paid off, and
    • The student loan must be paid in full-partial payments are not permitted.
  • The transaction may also be used to pay off one of the following:
    • an existing first mortgage loan (including an existing HELOC in first-lien position); or
    • A single-closing construction-to-permanent loan to pay for construction costs to build the home, which may include paying off an existing lot lien.
  • Only subordinate liens used to purchase the property may be paid off and included in the new mortgage.
    • Exceptions are allowed for paying off a PACE loan or other debt (secured or unsecured) that was used solely for energy improvements.
  • The borrower may receive cash back not to exceed the lesser of $2,000 or 2% of the loan amount.
  • If any debt other than student loan(s) and acceptable liens noted in this section are paid off at closing the transaction cannot be a Student Loan Cash-Out (Ex:  additional credit card debt paid at closing with cash-out proceeds)
  • Special Feature Codes 003 and 841 are required.
    • Underwriting must enter applicable special feature codes on the “Type of Mortgage & Terms of Loan” tab in Destiny

Refer to the updated product profiles posted to the Product Profiles page for all requirements.