Am I hurting my ability to borrow?

PETER G. MILLER

Q: I graduated from college several years ago with a bunch of student debt and have not been repaying my loans. How will this impact my ability to get a mortgage?

A: Student loans are a big lender concern and with good reason. First, a lot of student debt is outstanding. Second, a lot of student debt is not being repaid. Third, some mortgage rules require lenders to harshly treat unpaid student debt.

According to the Federal Reserve Bank of New York, student debt has reached almost $1.2 trillion, more than four times the $260 billion in student loans outstanding in 2004. The size of this debt is troubling in the sense that job opportunities for college graduates do not seem especially better than a decade ago — and yet there is far more student debt.

In many cases a college education is not generating expected income, but college bills still need to be repaid. A lot of student loans — loans worth about $200 billion — are delinquent. Mortgage lenders will find these loans and in most cases they will stop a loan application unless resolved.

Many borrowers want to finance with Federal Housing Administration-insured loans. However new rules from the Department of Housing and Urban Development make that virtually impossible for those with unpaid student loans. Since September, HUD has said that if a student loan payment "is zero or is not available" then the lender must "utilize 2 percent of the outstanding balance to establish the monthly payment."

At the end of 2014 the average student loan balance was $24,803; 2 percent of that amount is $496, which will be added to an FHA loan applicant's monthly debts if a student loan is delinquent, deferred or in a grace period. For many borrowers the addition of so much monthly debt will push up their debt-to-income ratio to a point where they can no longer qualify for financing.

If your student debt is both federally insured and delinquent then it will show up on HUD's Credit Alert Verification Reporting System, a database checked by lenders. If a loan is flagged by CAIVRS the mortgage application will go nowhere until the matter is straightened out.

The whole idea of student loans was to finance an education that would allow borrowers to enter the work force with better qualifications that would in turn allow them to earn more money.

The higher debt represented by student loans was supposed to be offset and more by the higher income such individuals could expect. Unfortunately, since the mortgage meltdown last decade many college graduates have been unable to get the jobs — and the income — they once thought a college degree would bring. The result is a massive amount of student debt that for many borrowers will block any attempt to get a mortgage.

If you have a student debt and are not making monthly payments, contact your student lender to get on the good side of the lending system.

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