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Deferred Obligations and FHA Loans

December 20, 2016

A reader asks, “How do you calculate monthly payments for estimated payment to begin when schooling is complete?” With student loans, there are two types of payments, one of which may apply in this case. Ongoing payments and deferred payments have different requirements.

It’s likely safe to assume that this reader question refers to how a lender is to process student loan information as part of the applicant’s debt-to-income ratio.

FHA loan rules in HUD 4000.1 include instructions to the lender for processing student loan debt information both as a “deferred obligation” that has not come due yet, and as an ongoing payment where applicable.

HUD 4000.1 instructs the lender to use the actual amount of the student loan payment wherever possible, but in cases where the loan is deferred and the payments don’t start until later? Different requirements apply. FHA loan rules require the lender to do the following:

“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.”


“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.” That is the current language in HUD 4000.1 at press time. However, in the summer of 2016, the FHA issued a mortgagee letter that includes the following:

“Regardless of the payment status, the Mortgagee must use eitherthe greater of 1 percent of the outstanding balance on the loan; or the monthly payment reported on the Borrowers credit report; or the actual documented payment, provided the payment will fully amortize the loan over its term”. Discuss this update with your loan officer if you aren’t sure how it affects your mortgage loan application or debt-to-income ratio.

Additional lender standards may also apply, so it’s best to check with your loan officer to see what other rules must be satisfied. The amount of time that remains until student loan payments become due and the time that the loan closes may be a very important factor in determining which method-actual or projected-the lender can use to establish the amount of the monthly payment.


Joe Wallace - Staff Writer

By Joe Wallace

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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