Old student loan debt almost cancels sale for growing family

Mortgage banker: Terry

Hastings.

Home value: $ 275,000

Loan amount: $ 265,000

Loan terms: 5.125 percent 30year fixed

Backstory: Hastings received a call from a couple who was referred by another bank. They were currently renting a small apartment with their two children and had difficulties in the past that had lowered their credit score.

They were back on track and desperately wanted to buy a home for their growing family. Hastings had a detailed conversation with them and pulled their credit report, bank statement and recent paystubs.

While they did not qualify for a conventional loan due to the credit score, Hastings was able to get them approved for an FHA loan with only 3.5 percent down.

An FHA loan is a loan insured by the Federal Housing Administration. The FHA loans allow for higher debt, lower credit scores and only requires 3.5 percent down. The bank makes the loan knowing that it is insured by the FHA should the borrower default.

Feeling excited, the borrowers found a great house and made an offer. After successfully negotiating with the seller, they provided the signed offer to purchase and made the formal application.

Prior to approving any federal loans like FHA and USDA, borrowers are run through a littleknown government database called CAIVRS ( Credit Alert Interactive Verification Reporting System).

Unknown to Hastings and not listed on the credit report, one borrower was flagged for having an unpaid student loan that was over 15 years old. Even though it had no impact on the credit report or score since it was dated, this CAIVRS alert made the borrower ineligible for the loan.

Hastings contacted the borrower and explained the situation. The borrower contacted the student loan servicer and made arrangements to pay off the small balance. After making the payment, the borrower was removed from CAIVRS and the loan was approved.

The loan was approved shortly afterwards and the buyers closed within 30 days. It was fair notice that the government never forgets those that don’t pay back federal loans, no matter how old.

Terry Hastings, Total Mortgage Services, ( 203) 470- 5434 TerryHastings. com