FHA Announces New Guidelines For Student Loans
Can the new guidelines for student loans help me buy a house?
You
have sky-high student loan debt and want to purchase a home. You did
some reading on mortgages and discovered that an FHA loan requires
just a 3.5 percent down payment.
Additionally, you heard about closing expenses paid by the seller,
lender concessions, and gift money. An FHA loan does seem like the
ideal mortgage. You also learned about the debt-to-income ratio. If
you're unfamiliar with the term debt to income, lenders compare the
amount of monthly debt to monthly income. Payments on student loans
are included into the calculation.
Prior to August 16, 2021, the student loan guidelines severely
restricted prospective home buyers who accumulated substantial
student loan debt.
Thankfully, the Federal Housing Administration (FHA) updated its
student loan guidelines.
The change makes it easier for borrowers with student loans to
qualify not just for FHA home loans, but also for greater loan
amounts.
FHA Student Loan Calculation
The lender must take the following actions for all outstanding student loans, regardless of payment status:
- the payment amount indicated on the credit report, when the payment amount is more than zero, or
- the actual stated payment; or
- if the student loan is in deferral or the credit report indicates that the borrower has not made any payments, the new FHA guidelines will estimate a monthly payment equal to 0.5 percent of the outstanding amount of the student loan.
What if the payment on my credit report is less than the payment on my student loan?
Student loan payments that are lower than those shown on the applicant's credit report must be verified by the creditor or student loan servicer in writing. The lender must also show proof of the outstanding amount and conditions of the loan.
Explanations of how to calculate a student loan's monthly payment in compliance with FHA rules
The new FHA regulation permits lenders to utilize either the actual payment shown on a credit report if it is more than zero or.5% of the loan total. Following are some examples:
- Payment appears on the credit report – The student loan
payment of $300 is reported on the credit report. Joyce owes
more over $200,000 in student loan debt. The lender will use the
actual payment amount shown on her credit report.
- Payment not on credit report. John owes $50,000 on his
school loans, and his credit record does not reflect a monthly
payment. When calculating John's debt-to-income ratio, the
lender will utilize a payment of $250 ($50,000 X.5%).
- Payment $0 on credit report. Kathy owes the federal
government $70,000 in student loans. Her credit report does not
list a monthly payment(s). Unless Kathy requests a recalculation
of her monthly payment owing to a major change in income or
family size, the lender will use $350 as her payment amount
($70,000 X .5%).
- Loan in deferment. Trudy is $100,000 in debt to the federal government for student loans. Her credit report indicates that her bills are deferred. After the deferral period expires, the loan officer will use a monthly payment of $500 until the loan servicer sends her a payment schedule indicating a reduced payment amount under an income-driven repayment plan.
Conclusion
In conclusion, the new FHA guidelines for student loans should make it easier for more people to buy a home. This is great news, especially considering the current state of the housing market. If you are thinking about buying a home, be sure to talk to your lender about getting a mortgage loan that is right for you.