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.

FHA changes may hurt homebuyers with student loans

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on FHA changes may hurt homebuyers with student loans
Oct 082015
 

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

By G. Steven Bray

New FHA loan guidelines may make it harder for you to qualify for a mortgage if you have student loans.

Previous to the new rules, FHA allowed us to ignore student loans that were deferred greater than 12 months. The new rules eliminate this exemption. All student loans must be considered as part of your monthly debt.

If your student loan servicer won’t report a monthly payment, the new rules say we must use 2% of the loan balance. Fortunately, loan servicers typically will provide an effective payment based on the loan’s current balance if you ask, and this payment typically is closer to 1% of the loan balance.

The change makes FHA more consistent with conventional loan programs. However, Fannie Mae allows us to use 1% of the balance if the servicer won’t report a payment.

FHA still provides one advantage over conventional loans. It allows the use of the actual payment for income-based student loan repayment plans. These plans often have payments that are less than 1% of the loan balance.

How does Freddie Mac handle student loans?

 Loan Guidelines, Residential Mortgage  Comments Off on How does Freddie Mac handle student loans?
Mar 112015
 

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

By G. Steven Bray

A few weeks ago, we examined the positive changes Fannie Mae and USDA made to their loan guidelines concerning the treatment of student loans. For deferred loans, both dropped the payment we must count when qualifying you for a mortgage from 2% to 1% of the loan balance.

But what about Freddie Mac? If the credit report doesn’t show the loan payment, Freddie says we can use 1.5% of the loan balance or ask the loan servicer to provide the payment. The guidelines don’t address the issue of graduated or income-based repayment plans, which don’t fully amortize the student loan based on the current payment. These plans may have payments less than 1.5% of the balance (or even 1% of the balance). I suspect Freddie will address this inconsistency soon.

Qualifying for a mortgage with student loans

 Loan Guidelines, Residential Mortgage  Comments Off on Qualifying for a mortgage with student loans
Feb 122015
 

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

By G. Steven Bray

If you have student loans, qualifying for a mortgage just got easier. Fannie Mae and USDA both have updated loan guidelines to reduce the loan payments that we must count when qualifying you.

For loans in deferment, the new guidelines cut the percentage of the loan balance we must use when calculating your total monthly debt from 2% to 1%. This is a big deal because it reduces the impact of student loan debt by 50%. Further, if the actual payment is less than the 1% calculation, the guidelines state that we can use that lower payment, but only if it fully amortizes the loan.

Unfortunately, if the lower payment is due to an income-based or graduated repayment plan, we have to use the 1% fixed amount. Under these payment plans, the monthly payment may rise, which means the current payment may not provide an accurate estimate of the loan’s impact on your finances.

While USDA already has implemented the new guidelines, the changes won’t apply to conventional loans until 4/1.