If you have read my previous article on student loan debt and housing approval, you will know that this can possibly derail your home ownership potential. Up until recently, FHA Guidelines on Student Loans had been extremely lenient, now it is not the case. In the past if you had deferred loans for at least 12 months prior to applying for a loan, the student loan debt was not calculated in your DTI (debt-to-income) ratio. However, when HUD 4000.1 FHA Handbook came out in September of 2015, the entire scenario changed. Now on the 2016 FHA Guidelines Student Loans, all of the deferred student loan debt that you currently have will be factored into and counted for your debt-to-income ratio on FHA loans. Even if your loans have been deferred for more than 12 months, it doesn’t matter with the new rules that were released.
In the case of professionals, doctors, dentists, attorneys, engineers, etc, who have spent a lot of time in college and have amassed a lot of student loan debt along the way will surely not like the 2016 FHA Guidelines Student Loans. These rules make obtaining a home a whole lot harder after their studies have been completed. In a lot of cases, these professionals have over $100,000 of student loan debt, and even as high as $500,000 depending on the school they obtained their education from. If the borrower in question also has government backed student loans, 2016 FHA Guidelines Student Loans states that these loans cannot be delinquent or in collections if trying to get an FHA loan.
The brand new 2016 FHA Guidelines Student Loans are set to go into effect for loan files created after June 30, 2016. In advance of these guidelines going live, a lot of lenders are already enforcing these guidelines since it is inevitable they are happening. If the case is created prior to June 30, large student loan balances shouldn’t bother FHA borrowers, but this may not be the case 100% of the time. Since these lenders can have their own lender overlays, you can see them enforcing these guidelines prior to them coming out formally.
After June 30, 2016 the new guidelines will be calculated in the following way: the mortgagee will need to use the greater of 1% of the outstanding student loan debt or the borrower’s monthly student loan debt payment that is reflected on the credit report. Let’s take an example of how this will be calculated and come into play in the coming months. If a borrower has $100,000 student loan debt and the fully amortized payment is $750, this is the amount that will be used in the debt-to-income ratio. However, if the borrower is on an income based repayment plan or interest only plan that isn’t amortized, the amount will be 1% of the loan amount or $1,000 in their debt-to-income ratio. These new 2016 FHA Guidelines Student Loans will essentially eliminate FHA loan applicants from having income based repayment plans for home ownership. All debt will most likely need to be fully amortized with a reported monthly payment.
If you’re looking for an experienced loan officer dealing with FHA, student loans, and DTI ratios, then look no further. Feel free to reach out to me anytime at 888-900-1020, email at firstname.lastname@example.org, or visit my website www.loanconsultants.org.