FHA makes it easier to qualify with student loans

 Loan Guidelines, Residential Mortgage  Comments Off on FHA makes it easier to qualify with student loans
Apr 292016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Last fall, FHA changed its loan guidelines to require lenders to include a homebuyer’s deferred student loans in the buyer’s debt calculation. The change made FHA consistent with other loan programs. If a creditor didn’t report a payment for a student loan, FHA instructed lenders to use 2% of the loan’s balance. Unfortunately, this was twice the percentage other loan programs required and made it more difficult for many first-time homebuyers to qualify.

Well, apparently FHA heard our complaints. For FHA loans registered on or after 6/30, FHA has changed the guideline to 1%, consistent with other programs. (I can’t explain why they didn’t make the change effective immediately.)

So, how does this change affect one’s ability to qualify? Consider a homebuyer who earns $4000/m. She has a $500/m car payment and $20k in student debt. She wants to buy a $200k home, which requires an estimated FHA mortgage payment of $1432.

Under the existing 2% guideline, the ratio of her debt to income would be 58%, and she would not qualify. However, under the new guideline, the ratio drops to 53%, and she could qualify.