Get Out of Student Loan Default, Clear CAIVRS, Get a Mortgage. Here's How

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Stanley tate

Student Loan Lawyer

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You can get a mortgage with defaulted student loans. But if you have defaulted federal student loans and you're applying for an FHA Loan, VA Loan, or USDA Loan, you'll need to get out of default before your application will be approved. Your name will be listed in the Credit Alert Verification Reporting System (CAIVRS) until you do. Keep reading to learn your options to clear CAIVRS before your closing date.

What is the CAIVRS System?

The Credit Alert Interactive Voice Response System is a database created by the U.S. Department of Housing and Urban Development (HUD) in 1987 to track defaults, delinquencies, and foreclosures related to other federal loan programs.

Information is sent to CAIVRS by several federal agencies, including:

  • the Department of Education
  • the Small Business Administration (SBA)
  • the Department of Veterans Affairs (V.A.)
  • the Department of Agriculture (USDA)
  • the Department of Justice

CAIVRS uses your Social Security Number and other information to match you to debt for a federal lien, judgment, foreclosure, student loan, etc.

Before qualifying a borrower for a federally backed loan, the mortgage lender must use CAIVRS to screen the loan applicant. Typically, your lender will wait until you're in the final stages of closing before they do a CAIVRS check. As a result, many future homeowners don't find out they're in CAIVRS until their closing date is weeks away.

  • Can I check my own CAIVRS report? Unfortunately, you cannot check your own CAIVRS report. You have to be an authorized user to do a CAIVRS check. Authorization is limited to federal agencies and to financial institutions.
  • How do I suppress a CAIVRS report? You can ask for a CAIVRS suppression after you've resolved the delinquent federal debt with the agency, either by fixing the disputed information or by entering into a satisfactory loan repayment agreement. Each reporting agency has access to request the CAIVRS database and can request the CAIVRS suppression themselves.

Can I get an FHA mortgage with defaulted student loans?

First-time homebuyers can qualify for an FHA mortgage with defaulted private student loans. But if they're in default with federal student loans, they have to first get out of default and clear the CAIVRS database before their mortgage lender can approve their FHA Loan application. I discuss your 3 options for getting out of default below.

Can I get a conventional loan with defaulted student loans?

You can get a conventional loan with defaulted student loans. Conventional loans are not backed by a federal agency. So they don't require a CAIVRS report.

Before approving you for a conventional mortgage with a federal or private student loan in default, your lender will likely require:

  • a good credit score (680+)
  • a down payment
  • a letter showing how you're addressing the defaulted student loan (loan rehabilitation, settlement, repayment plan, etc.)

Note: Since many conventional loans are backed by Freddie Mac or Fannie Mae, you'll want to check their student loan guidelines. Your student loans could negatively affect your DTI ratio.

How do I clear CAIVRS?

To clear CAIVRS, you need to resolve the debt with the reporting agency that sent your information to the database. For example, with defaulted student loans, that means contacting the Default Resolution Group and determining your options to get out of default. For an SBA Loan, you'll need to establish a satisfactory written agreement with the SBA.

Can I get a CAIVRS waiver for student loans? You can apply for a CAIVRS waiver for student loans from the government agency you're applying to get a loan from. That is, if you apply for a  home loan from the Federal Housing Administration, but are in CAIVRS for a loan owed to the U.S. Department of Education, you'll have to request a waiver from the FHA, not the Department of Education.

The head of the government agency or the agency's chief financial officer is the only person who can grant homebuyers' waiver requests. They have the discretion to grant your CAIVRS waiver request if your request meets specific guidelines and provides the information required by federal law.

Note: I've never seen any home buyer successfully get a CAIVRS waiver.

What if the CAIVRS report is wrong? The FHA may delete erroneous CAIVRS information indicating that a borrower has defaulted on an FHA mortgage. You can try contacting your local FHA Homeownership center. Still, FHA won't delete or alter incorrect information from another federal agency, like the Department of Education or the Department of Veterans Affairs. You'll need to contact the reporting agency and have them remove you from the system.

What if the defaulted student loan isn't on my credit report?

Some student loan defaults no longer appear on your Equifax, Experian, or TransUnion credit reports. That's because it's been more than 7 years since you defaulted on the loan.

But even if your defaulted loans aren't on your credit report, they can still stop you from getting approved for a mortgage-backed by the federal government. Although your federal student loans don't appear on your credit report, they'll still appear in CAIVRS.

Defaulted private student loans not on credit report? Private student loans that are in default don't appear in CAIVRS. So if your private student loan debt isn't on your credit report, then it shouldn't stop you from getting a mortgage. In addition, the private loan likely won't be included in your monthly debt payments. And that should improve your debt to income ratio and, possibly, lower your interest rate and mortgage payment.

How do I get my student loans off CAIVRS?

The Department of Education offers student loan borrowers 3 options to get federal student loans off of CAIVRS:

  1. Negotiate a settlement
  2. Apply for loan consolidation
  3. Enter into the loan rehabilitation program

1. Settlement

A federal student loan settlement will get you out of default in about 1-2 weeks. But depending on your student loan balance, a federal student loan settlement can be expensive. Federal loans don't settle for pennies on the dollar. Usually, the loan holder will demand around 85-90% of the current loan balance less collection fees. Plus, you'll have to pay the settlement within 90 days.

2. Consolidation

Most new home buyers apply for a consolidation loan to get out of default. You can consolidate your loans for free at studentaid.gov. The loan consolidation process usually takes about 2 to 3 months to complete. And it can take another 10 business days to clear CAIVRS after the consolidation completes.

However, I've been able to help clients complete the entire process in about 4 to 5 weeks. I have done so by working directly with the student loan servicer handling the consolidation and the Debt Management Collections System.

Do I need to pass a credit check to get a consolidation loan? Although the Department of Education typically does a CAIVRS check to pre-screen the creditworthiness of an application for a Direct Loan, you can consolidate your defaulted federal loans without having to clear CAIVRS. The Department of Education will not deny your consolidation application because of a low credit score.

3. Loan rehabilitation

Loan rehabilitation won't help you if your closing date is near. Loan rehabilitation takes 9 monthly student loan payments to get out of default. You don't regain eligibility for an FHA mortgage loan until after you make your 9th monthly payment.

In case you're wondering, you cannot make the loan rehabilitation payments in a lump sum. You have to make each monthly payment within 20 days of the due date.

CAIVRS questions

  • How long do defaulted student loans stay on CAIVRS? Defaulted student loans will stay on CAIVRS until you get out of default. Agreeing to make monthly payments on your defaulted federal student debt won't remove you from CAIVRS. You have to get out of default using settlement, loan consolidation, or the loan rehabilitation program. Veterans who have applied for loan forgiveness due to disability will clear CAIVRS after the loan forgiveness application is granted.
  • Does the Department of Education grant a CAIVRS waiver? The U.S. Department of Education does not grant CAIVRS waivers so you can get a mortgage. You have to contact the agency you're trying to get a home loan from (FHA, VA, etc.) to request the waiver. But the Department of Education will remove you from the CAIVRS list if you get your federal student loans out of default.
  • How long does it take to update CAIVRS? It can take up to 10 business days to update the CAIVRS database after you get out of default.
  • How long does it take to clear CAIVRS after a student loan is paid in full? It typically takes about 10 business days after paying a student loan in full through settlement or consolidation for the loan to clear CAIVRS.

Closing soon and need to clear CAIVRS?

In most cases, your best options to clear CAIVRS in time for closing are student loan settlement and loan consolidation. But, of course, you can try to do either one of those things yourself. But do you want to risk losing your home by not fully understanding the process to get out of default and clear CAIVRS?

I can help you get you out of default in time for closing. Schedule a free 10-minute call with me today. We'll go over the right strategy for you and any alternatives that may be available to you so you can get your home.

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Hey, I’m Tate.

I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

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