The new FHA Loan Underwriting Handbook is now changing on 9/14/15. With those changes (that had been scheduled for June) there are significant changes to Deferred Student Loans FHA Mortgage Qualifications in NC. Currently, we are allowed to “ignore” deferred Student Loans, meaning they don’t affect your qualifying ratios.
Starting this fall we MUST count Deferred Student Loan Payments as we calculate what mortgage amount you qualify for.
Deferred Student Loans FHA Mortgage in NC
Effective this fall, FHA Mortgage Qualifications will more closely follow those of USDA Home Loan Underwriters… however there is a difference.
Deferred Student Loans FHA Mortgage Qualifications simply state that we must “establish” a payment. USDA Home Loan guidelines for Deferred Student Loans are pretty clear. The payment we establish for USDA Loan financing (when there’s deferred student loans of any kind) must show that the payment amounts will be fixed payments.
This means for USDA Loans (which require no down payment) you can’t be in an IBR or PAYE plan, where your payments are subject to change. You MUST convert those loans over to a FIXED PAYMENT status to qualify for a USDA Home Loan… and of course, we have to count those payments against you.
Again, the new FHA Loan Guidelines simply state that we must establish a payment.
Some Mortgage Loan Companies are “interpreting this” to mean that:
Even if a borrower has student loans deferred or in forbearance for up to 12-48 months, FHA is still forcing lenders to count the projected repayment amount into the borrowers DTI ratio. There are no exceptions to this.
FHA Loan Underwriters are telling us (and I’ve talked to like 7 different Companies to see what their Underwriting Department thinks) that FHA is only requiring us to DOCUMENT that you have payments for the next 24 months.
You might have NO PAYMENTS due for the next 24 months… but if you choose to go out of IBR or PAYE status, you could have a total of $228 a month.
Are we counting the $00.00 or the $228 amount.
The NEW FHA Guidelines state that if the ACTUAL payment is $00.00 then we are required to count 2% of the Balance as a payment amount!
The Guideline doesn’t take place until 9/14/15.
Until that time – if we can prove that you have Deferred Student Loans for at least the 12 months after closing, then we don’t have to count them at all against you to qualify for a mortgage to buy a house.
Good News? I’ve talked to multiple FHA Underwriters who are interpreting this guideline change for Deferred Student Loans FHA Mortgage Qualifications to mean that you DON’T HAVE TO change your payment plan over to a FIXED PAYMENT plan.
This is a SIGNIFICANT benefit for FHA Loan Borrowers.
What If We Can’t Establish A Student Loan Payment?
These New FHA Loan Guidelines state that:
If the actual monthly payment is not available for deferred installment debt, the lender must utilize the terms of the debt or 5 percent of the outstanding balance to establish the monthly payment.
For a student loan, if the actual monthly payment is zero, the lender must utilize 2 percent of the outstanding balance to establish the monthly payment.
So, if you have a statement from your Student Loan Servicer that says current payment amount is $00.00 and the payment starting in October will be $00.00 then the Deferred Student Loans FHA Mortgage Qualifications that we must then count 2% of the student loan balance.
Lets take an example of a college graduate who has $35,000 in deferred student loans debt (because I can do this math in my head). If we have to count repayment on that debt at 2% of the balance, we just added an extra $700 month liability to qualifying for a house.
“If this person’s max qualifying purchase price is a $325,000 home (with 3.5% down payment & not including the deferred student loan payment), it’s quite possible FHA’s new guideline will reduce this borrowers buying power by 30% or more!!
In this real life example, the buyers new maximum qualifying purchase price (with 3.5% down payment AND Student Debt) would be reduced to less than $225,000! That’s at least a $100,000 reduction in buying power!”
“Home prices are currently rising more quickly than either per capita personal income or wages, narrowing the pool of future home buyers,” David Blitzer, chairman of the S&P index committee.
We agree that no longer excluding deferred student loan payments and slowing of wages will cause educated buyers to qualify to buy a house in NC at a slower pace.
It’s a big change, and it’s probably going to mean that more Millennial home buyers with deferred student loan debt will have a tougher time going down the path to home ownership once this rule goes into effect… because you could end up with higher than “accepted” debt to income ratios.
How High Debt To Income Ratios Work
If we count student loan debt that’s currently in deferment against you – it’s going to reduce how much a buyer can qualify for….that’s just how it is.
The College educated group of Millennial first time home buyers affected by this are typically looking for programs with low down payment features. FHA Loans offer the ability to get gift funds for the required 3.5% down payment, or you might qualify for a Mortgage Grant from the State.
FHA Mortgage Loans have two levels of the “Approval Process.”
The first level is pretty simple for folks with a middle credit score of at least 640. You could have a DTI, or Debt to Income ratio of up to 48% in some cases.
For those with lower scores, and those with debt to income ratios above 43%, you will be required to meet the “FHA Manual Underwriting” (read more restrictive) guidelines. Those “Manual Underwrite” FHA Home Loan Eligibility requirements include a more “difficult” set of qualifying ratios.
We believe home buyers with several hundred dollars of Student Loan Debt (that the new FHA Loan Rules will require us to count), are going to also be required to meet the Compensating Factor rules for High Ratio FHA Loans. These can ALSO be tricky to navigate, and frankly, not all mortgage companies have the ability to approve this type of borrower – because they consider them to be a higher risk. (WE CAN!)
Until these changes take effect, FHA Loans will continue to be the ‘go to’ loan program for buyers who have deferred student loan debt.
After 9/14/15 – VA Home Loan financing will be the only program that still excludes deferred student loans from qualifying.
If you have questions about Deferred Student Loans FHA Mortgage Qualifications in NC, your’e in luck! That’s where we come in – we help SOOO many folks who have various types of deferred student loans in NC, we know what WILL work, and what won’t. Please call Steve and Eleanor Thorne 919 649 5058. We work with First Time Home Buyers everyday, and we would love to be the mortgage lender you choose to help you buy your house!
Does this apply in Texas as well? I’ve been trying to find info but haven’t been successful
Yes. This is a FHA Loan, which means the FHA guidelines are the same in all states. Our friend, Tom Burris is a great resource for you in Texas. His number is 214-763-4629
Hi Eleanor:
I have student loan debt that is in the consolidation process with FedLoan.org. Navient has taken over Sallie Mae and is now my servicer. According to Navient, I qualify for the IBR and my payments for the next 12 months are $0. After 12 months, I will have to re-qualify. I am currently working with a lender now. The lender made copies of my stubs, bank statements, and taxes. My FICO score is 679. I live in the Richmond, VA area. In your opinion, do I stand a good chance of getting an FHA loan? I also plan on applying for some grant money.
Thank you!
Well, you’ve done your homework, and your credit appears to be inline. I’ve seen this situation work. The borrower had to provide us with a statement that the loan was in deferment based upon income. Then we had to get a Verification of Employment (which the lender sends to your employer) that said the likely pay increase for the next year was 0 to 7% (for example). Then we did the calculations showing that at the very best case, the borrower would still be under the income limits for deferment. Hope this make sense. I keep saying it’s complicated – because it IS COMPLICATED. Good Luck!
My husband and I were looking to apply for a mortage by August. We decided to have my husband be the only one on the loan (due to my student debt being very high). He makes about 34000 a year and has about 36000 in debt. He is currently due to graduate in Sept of this year. He was planning on continuing on to his bachelors degree after he graduated therefore making his loans still deferred. If we apply for a loan in August and can prove his loans will be in deferment for at least 12 months will they still count the debt? What happens if we are not able to close before the deadline in September would they count the debt against us?
So what happens if you apply for a mortgage before the September deadline but can close until after the deadline? (hope that makes sense) Will they count your loans in deferment or follow the new guidelines?
Thank you for this informative article!
Is Sept 14th the deadline for closing on a home or just for being under contract? If the latter, I think I can make it. If the former, it doesn’t look likely.
Ellen, the September deadline is for CASE NUMBERS PULLED BY.. meaning contract accepted, and the Lender has to request a “case number” or file number for you by that date. Not closed… but you will need to have your lender in place, and ready to get your “number” in line by that date. We would love to help you, our number is 919 649 5058
If you apply before the deadline, and a FHA CASE NUMBER is pulled by the Lender you are fine. In order to have a Case Number – you must have a contract on a house. We would love to help you, if you are in NC call us at 919 649 5058
You will need a FHA CASE NUMBER by the September deadline. This means you will need to be able to prove that his student loans are in deferment for the 12 months from closing (which is hard to do) and have a contract on a house by that day. If you are in NC, please call us at 919 649 5058
We’re in Rochester, MN 🙁 I wish you guys were here! I wish I could find an FHA expert like you guys out here! Thanks for this article very informative.
Hi Eleanor (my name is Eleanor too!) you have a lot of great information about FHA and IBR repayments. I live in Southern California and have desperately been trying to get a preapproval in California. The two lenders that I have spoken with state that because the payments are not amortized, that the 2% of the balance will be figured into my DTI! My loans are not in deferment and I am paying $41.00 per month under the IBR plan. I need to go FHA because I had a BK two years ago. It seems to me that everyone is misinterpreting these new FHA guidelines and most underwriters will calculate the monthly payment of a student loan at the standard payment, and not the IBR! I know this is not what the FHA guidelines say, but I am running into roadblocks trying to get preapproved. Can you recommend a lender in California that will calculate my monthly student loan debt at the actual payment amount and NOT the 2% rate? Any help is appreciated. Thanks so much.
So sorry to hear this. I understand that Wells Fargo announced today that they are tightening their credit score guidelines! Yikes! Anyway, contact my friend Colleen Craig in Cali at (661)-310-8536. Tell her Eleanor (HeHeHe) gave you her name! Best wishes!
I. Found your page by searching ibr and fha- I have a question – I recently applied for a home loan (9/15/15) however the process has stop because I have a ibr payment of 0- yesterday I contacted my student loan company and now I have a payment on my ibr less then 60 dollars- will I be able to use this to get approved for my home loan?
Yes, if you are in NC, please call us at 919 649 5058. We can definitely help!
Hi, I am running into issues because my IBR is 0 even though i have documentation! The next one up is graduated which is 250 which works with my DTI but I have yo actually switch over to that in order to get documentation (according to navient). However, I am willing to do that. Do you have any Richmond VA lenders that can help? The other lender I talked to doesn’t seem to understand the new rule much.
Sean Andrews can help you. His number is 540 809 6162. Tell him Eleanor Suggested you call…