April 18, 2016
We’ve gotten a variety of questions and comments about the FHA’s recent update of policy regarding student loans, deferred obligations, and what calculation the lender is supposed to use when a borrower applies for an FHA mortgage with student loan debt in his or her name.
Under the previous FHA loan policy, student loans that were in deferred status were still required to be included in the debt to income ratio by the lender. This was done by taking the balance of the student loan debt and using a percentage of it to calculate an estimated monthly mortgage payment if an actual payment wasn’t available at application time.
The updated FHA loan policy for deferred obligations now excludes student loan debt. The rule for deferred obligations–a financial obligation which will begin at some future date but is not payable now–is as follows according to a recent FHA mortgagee letter:
“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.”
Again, the above is for deferred obligations EXCEPT for student loans. New FHA loan policy for lenders who need to calculate deferred student loans or existing student loans with an actual payment amount available to the lender is as follows:
“Regardless of the payment status, the Mortgagee must use either the 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.”
Borrowers who aren’t sure how these rules may apply to their situation should discuss their questions with a loan officer to see what documentation may be required and what steps must be taken to document and verify the student loan.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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.
Browse by Date: