Once reader asks, “What about student loans, that are ‘in school’, and not even due and payable? We tried to get the Income Based Repayment, from the servicer, and they told us the loans are not due payable yet, therefore they can not be calculated for the Income Based Repayment. That doesnt seem fair. The statement says they are not due for 5 years, and then an additional 6 months after I graduate.”
FHA loan rules in HUD 4000.1 address student loans that have not yet come due as “deferred obligations” which page 180 of HUD 4000.1 describes as, “liabilities that have been incurred but where payment is deferred or has not yet commenced, including accounts in forbearance”.
What do FHA loan rules say about student loans that have been incurred but have not been declared payable yet? To begin, these debts, which may not be due for some time, still must be included in a borrower’s financial obligations for the purpose of the loan. But if no monthly payment amount is available, how is the lender supposed to calculate what the financial obligation might be?
HUD 4000.1 states, on pages 180 and 181 that it’s the lender’s job to verify the debt by getting a statement from the financial institution issuing the student loan that the payment is indeed deferred. “The Mortgagee must obtain written documentation of the deferral of the liability from the creditor and evidence of the outstanding balance and terms of the deferred liability. The Mortgagee must obtain evidence of the anticipated monthly payment obligation, if available.”
In cases where the anticipated amount is not available, or when the payment is currently at “zero”, FHA loan rules are clear.
“The Mortgagee must use the actual monthly payment to be paid on a deferred liability, whenever available. If the actual monthly payment is not available for installment debt, the Mortgagee must utilize the terms of the debt or 5 percent of the outstanding balance to establish the monthly payment. For a student loan, if the actual monthly payment is zero or is not available, the Mortgagee must utilize 2 percent of the outstanding balance to establish the monthly payment.”
So the answer to the reader’s question is that the “2 percent rule” mentioned above would apply in any case where there is a deferred student loan and the anticipated monthly payment is not available.
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