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Discussions tagged with 'Getting Approved For a Mortgage With Defaulted Federal Student Loans'
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Mortgage Qualification Question: Federal Student Loans In Default But Not Reporting On Credit
Good morning,
I have a mortgage qualification question regarding a potential homebuyer who may be looking to purchase a home within the next 12 months.
The borrower currently has good credit, with scores around 720. His credit cards and other accounts are in good standing. However, he has older federal student loans that went into default. These student loans no longer appear on his credit report, but they are still showing in the federal student loan system as being assigned to Debt Management and Collections.
The borrower wants to correct the default status before applying for a mortgage, but he wants to make sure he handles it the right way from both a credit and mortgage underwriting standpoint.
In this type of situation, is it usually better for the borrower to resolve the default through student loan consolidation, rehabilitation, or another available option?
One of his biggest concerns is what happens after the default is resolved. Would the loans simply come back as active federal student loans with little or no negative credit impact, or could the process cause older derogatory history to reappear on the credit report and create a new mortgage approval issue?
From a lending standpoint, what would be the best way to approach this before applying for a mortgage? Also, how long should the borrower wait after the default is resolved before starting the mortgage application process?
I would appreciate any guidance from mortgage professionals, underwriters, or anyone who has handled a similar situation.
Thank you,
Cameron Alan Pearlman, Jr.View Last Reply:
replied 1 hour, 20 minutes ago
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