February 14, 2012
FHA loans require the lender to calculate the borrower’s debt-to-income ratio to determine if the applicant can realistically afford to make a monthly FHA mortgage payment. The borrower’s debts are reviewed and compared to the amount of money coming in–if the ratio is within FHA requirements, the loan can be approved (assuming the borrower meets the other FHA loan criteria).
Some borrowers are rightfully concerned about the amount of debt they bring to the bargaining table. Too much debt and the borrower could be denied the FHA home loan. But not all financial obligations are necessarily counted toward the borrower’s debt-to-income calculation.
FHA loan rules say some debts, usually with 10 months or less remaining on the payment agreement, do not have to be counted. The lender may choose to include them anyway, but does have the option of ignoring this type of financial obligation.
One of the most worrisome types of debt for some borrowers? Student loans. Does the FHA allow a lender to overlook student loan debts when calculating the debt-to-income ratio?
According to the FHA, “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.”
But FHA loan rules add an important exception to that rule. According to HUD4155.1 Chapter 4 Section C, “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.”
Note that written proof is required–the borrower must verify this as with all other portions of the FHA borrower’s financial data. So while student loans can and are included in the debt calculations, some borrowers do have an option if they can meet the FHA requirements in this area.
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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