2016 FHA Guidelines On DTI And Student Loans

2016 FHA Guidelines On DTI And Student Loans

Student loan debt can be a major obstacle when qualifying for a home loan. FHA used to have extremely lenient FHA Guidelines On Student Loans where if you had deferred student loans that was deferred for at least 12 months that you can exclude the potential student loan payments from your debt to income ratio calculations. Unfortunately, under HUD 4000.1 FHA Handbook which was launched September 14, 2015, all deferred student loans will be counted in the debt to income ratio calculations of the FHA mortgage borrower even if the student loans have been deferred for longer than 12 months. Professionals who have graduate or professional degrees such as doctors, dentists, pharmacists, attorneys, and engineers can have substantial student loan balances where it can exceed north of six figures. I have run into borrowers who had student loans with balances greater than $300,000 and some even higher than $500,000. Government backed student loans cannot be delinquent and cannot be in collections in qualifying for FHA Loans. FHA does not require borrowers to pay off outstanding collection accounts or charge off accounts, however, since FHA is a government entity, you cannot be delinquent and/or have government loans or debts owed to the government such as tax liens in order to qualify for FHA Loans. FHA is not a mortgage lender. FHA’s function is to insure FHA Loans that are originated and funded by private banks and mortgage companies that are FHA approved lenders in the event of the FHA mortgage loan borrower defaulting on their FHA Loans and going into foreclosure.

2016 FHA Guidelines On DTI And Student Loans: New Student Loan Guidelines

There are new 2016 FHA Guidelines On DTI And Student Loans that is right around the corner that may affect FHA mortgage borrowers. The new 2016 FHA Guidelines On DTI And Student Loans will come into effect on June 30th, 2016. As long as the FHA case number has been ordered prior to June 30th, 2016, it will not affect FHA mortgage loan borrower who have large student loan balances. Unfortunately, many FHA mortgage lenders have already put this new 2016 FHA Guidelines On DTI And Student Loans into effect even though it will not be taking effect until June 30th, 2016.

For FHA case numbers that are ordered after June 30th, 2016, which is FHA case numbers that will start on and after July 1st, 2016, the monthly student loan payments that FHA is going to be requiring mortgagees to use as a monthly student loan payment will be the following:

The mortgagee will need to use the greater amount of one percent of the outstanding student loan balance on the student loan or the borrower’s monthly student loan payment that is reported on the FHA mortgage loan borrower’s student loan payment that is reflected on the FHA borrower’s credit report or the actual dollar amount that is documented as the borrower’s monthly payment provided that the student loan payment will fully amortize the student loan over the term of the student loan.

Lets take a case study example where a FHA mortgage loan borrower has a $75,000 student loan balance and the fully amortized student loan payment is $600.00, the monthly student loan payment that will be used to qualify is $600.00 per month.  However if the FHA borrower has a $600.00 student loan payment which is an income based repayment (IBR) or interest only student loan payment, then those student loans do not fully amortize the student loan and then the student loan payment which will be be used to qualify the FHA mortgage loan borrower would be the greater of 1.0% of the student loan balance which is $750.00 or what the monthly student loan payment reported on the credit report will be.

This new 2016 FHA Guidelines On DTI And Student Loans will effectively terminate FHA mortgage loan borrowers being able to use IBR, income based repayment payment plans on their debt to income ratios for student loans.

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