April 16, 2014
When you apply for an FHA loan, your lender must calculate the amount of income you have versus the amount of debt you currently pay on and factor in the amount of your projected mortgage. The amount of debt is compared to your income to determine whether or not you can afford the loan based on FHA guidelines.
In general, borrowers should have less that 40% of their income taken up by recurring financial obligations. FHA rules explain exactly how much debt to income you can have and still qualify for an FHA mortgage. These ratios can vary depending on the borrowers status as a self-employed person or other factors.
The overall debt picture is important when the lender is trying to figure out if a borrower is a good credit risk, but certain types of debt don’t factor in right away–for example, a student loan that is not yet due but may become due within a year or so of the home loan closing. Can this debt be used in the debt-to-income ratio calculation?
FHA loan rules in HUD 4155.1 Chapter Four, Section C addresses this issue, stating:
“Debt payments such as a student loan or balloon note scheduled to begin or come due within 12 months of the mortgage loan closing must be included by the lender as anticipated monthly obligations during the underwriting analysis.”
However, FHA loan rules also add, “Debt payments do not have to be classified as projected obligations if the borrower provides written evidence that the debt will be deferred to a period outside the 12-month timeframe.” Borrowers who have a student loan deferred in such a manner should bring paperwork to the lender to show this will happen–the lender will need to document this accordingly.
It may be best to initiate such deferment before you fill out the application for an FHA mortgage loan–or have the paperwork ready to turn in with your mortgage application if you’ve applied already.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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