FHA Deferred Student Loans Requirement And How It Affects DTI

This BLOG On FHA Deferred Student Loans Requirement And How It Affects DTI Was UPDATED On August 13, 2017

Higher education tuition is extremley expensive and it is almost impossible to enroll and attend college these days without student loans.

  • Higher education expenses can surpass $30,000 per year at state colleges and universities.
  • Private colleges and universities can easily surpass the $50,000 mark annually to attend. 
  • Many college graduates accumulate more than $100,000 or more in student loans by the time they graduate.
  • Often times have their student loans deferred. 
  • Deferred student loans can become a problem for those college graduates who need to qualify for a residential mortgage loan.  
  • FHA Deferred Student Loans Requirement has changed where deferred student loans are no longer exempt from DTI Calculations.
  • Deferred student loans, with the exception of VA Loans, are no longer exempt from DTI Calculations.  
  • FHA Deferred Student Loans Requirement used to have favorable unlike conventional mortgage lending guidelines but now it is no longer the case.

Conventional Mortgage Lending Guidelines

Deferred student loans on conventional loans has changed for the better. We will discuss the old rules versus the new rules on conventional loans. Fannie Mae and Freddie Mac are the two mortgage giants that regulate conventional mortgage guidelines.

  • If student loans have no monthly payments on credit report, Fannie Mae and/or Freddie Mac mortgage guidelines want mortgage lenders to take 1.0% of the student loan balance and use that number as a monthly debt payment.
  • This payment is used in DTI Calculations.
  • The old rule to qualify was to take 2% of the student loan aggregate balance amount in calculating the monthly payment.
  • The 2.0% has now been changed to 1.0%.
  • For example, a borrower who has $100,000 student loan balance, with the old Fannie Mae Guidelines, 2% of the balance or $2,000 per month was taken as a monthly debt for the underwriter to use to calculate the debt to income ratio.
  • With the new guidelines, only 1.0% can now be used.
  • Borrowers who make $50,000 and higher student loan balances will have a difficult time to qualify for Conventional Loans.

What Are FHA Deferred Student Loans Requirement

The old FHA Deferred Student Loans Requirement was to exempt student loans that has been deferred more than 12 months from debt to income ratio calculations. This rule has now changed. All deferred student loans, no matter how long they have been deferred, is no longer exempt for DTI.

  • With the old FHA Guidelines, it used to be in the event if the mortgage loan borrower is still in school, they can get a letter from student loan provider that the student loan is still deferred while they are still in school. 
  • The only way student loans that were deferred was counted in DTI calculations was if the student loan was deferred less than 12 months.
  • Then deferred student loans monthly payments are calculated in the mortgage loan borrower’s monthly debt to income calculations.

FHA and USDA have the same guidelines on deferred student loans.

VA Loans

VA Loans is the only mortgage loan program that exempts deferred student loans in debt to income ratio calculations. Under VA Guidelines On Deferred Student Loans, any student loans that is deferred for more than 12 months are exempt from debt to income ratio calculations.

Solutions To High Student Loan

Borrowers who have high balance student loans and need to qualify for a mortgage have options. The Gustan Cho Team has no lender overlays on government and conventional loans. FHA allows higher debt to income ratios than Fannie Mae and/or Freddie Mac. For home buyers with higher DTI, FHA Loans allow up to 46.9% front end and 56.9% back end debt to income ratio.

Here is a way where borrowers can qualify for FHA Loans with high student loan balances:

  • Need to use the following verbiage
  • Contact student loan provider
  • Tell them that you are applying for a mortgage
  • Tell them that the lender is requiring a fully amortized monthly payment on the maximum extended term possible
  • The extended payment term is normally 25 years
  • This figure is normally 0.50% of the student loan balance 

Following the above instructions should help borrowers with high student loan balances.  Nothing needs to be changed. Borrowers on deferred student loan plans do not have to change them. The above instructions is just theoretical and all is needed is a written statement showing a hypothetical case. Underwriters will take this. Please do not hesitate to contact The Gustan Cho Team at USA Mortgage with any questions in qualifying for mortgage with high student loan balances at 1-800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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