Fha Student Loan Guidelines 2022 - Empowering Your Financial Journey

In the summer of 2021, the FHA modified its regulations to stop calculating a borrower’s debt-to-income ratio using 1% of their outstanding student loan balance. Under an income-based repayment plan, lenders can now use the borrower’s actual student loan payment.

You have been told in the past that your student loan debt will prevent you from being approved for a mortgage loan, despite the fact that you are eager to purchase a home. After a recent modification to the FHA student loan regulations, that might no longer be the case.

In June 2021, the U. S. By changing how it calculates student loan payments when determining a borrower’s debt-to-income ratio, the Department of Housing and Urban Development (HUD) made it simpler for more Americans to become first-time homebuyers.

Discover how to become a homeowner with student loan debt and the modifications to the FHA student loan regulations in the sections that follow.

Old FHA student loan guidelines

When applying for an FHA mortgage, borrowers with large student loan balances discovered that the debt was a barrier under the previous FHA student loan guidelines. Due to these regulations, lenders were required to calculate monthly loan payments as 1% of the outstanding balance, regardless of the borrower’s actual payment. This excluded some borrowers with lower payments who were enrolled in income-driven repayment plans.

New FHA student loan guidelines

In a move to help more Americans become homeowners, the Federal Housing Administration updated its student loan monthly payment calculations. The change to the guidelines removed the requirement that lenders calculate a homebuyer’s monthly student loan payment at either 1% of the outstanding loan balance or an amortization-based payment. In its place, the new FHA student loan guidelines allow the lender to use either:

The actual payment amount for the student loan.

The monthly student loan payment reported on the borrower’s credit report.

A .5% of the student loan balance if the reported payment status is zero.

For loans made after August 15, 2021, this new guidance is applicable.

“Homeownership is the cornerstone of the American Dream and the best way to build generational wealth,” said Housing Secretary Marcia L. Fudge in a press release.

New FHA deferred student loan guidelines

The new policy update, which is located in Mortgagee Letter 2021-13, allows mortgage lenders to use .5% of the balance for all student loans in deferment instead of the 1% it had used in years prior.

If the . Consider deferring the payment until you pay down some debt or end the deferment early and apply for an income-driven repayment plan if the 5% payment amount increases your DTI calculation.

FHA guidelines on student loan collections

FHA guidelines state that borrowers cannot obtain a mortgage if their federal student loans are in default. They must first exit default and remove all collection accounts that are owed to the federal government from the CAIVRS database.

There’s no similar database for private student loans in collections. Your debt-to-income ratio will be affected if the debt is still listed on your credit report, in which case you will need to work out a payment arrangement with the creditor or collection agency. Your likelihood of getting a home loan won’t likely be impacted if the student debt is gone.

Learn more: Want a defaulted student loan off your credit report? Follow These Steps

Examples of how to calculate student loan payment for FHA guidelines

In accordance with the new FHA policy, lenders may use either the actual payment listed on a credit report if it is greater than zero or 5% of the loan balance. Here are some examples:

Payment on credit report. Jane owes $200 thousand in Parent PLUS Loans. Her credit report shows that her monthly payment is $300. The lender will use the actual documented payment amount on her report.

Payment not on credit report. Thomas’s outstanding balance on federal loans is $50 thousand, and the monthly payment on his credit report is $0. The lender will use $250 as his payment when calculating his DTI ratio.

Payment $0 on credit report. Kelly owes $70 thousand in federal student loans. Her credit report shows that her monthly payment is $0. The lender will use $350 for her payment amount unless she asks her servicer to recalculate her monthly payment due to a significant change in income or family size.

Loan in deferment. Tracy owes $100 thousand in federal loans. Her credit report shows that her loans are in deferment. The loan officer will use $500 as their actual monthly payment unless she can get a payment schedule from her servicer showing a lower payment amount under an income-driven repayment plan when the deferment ends.

Eligibility Requirements for an FHA Loan

You’re eligible for an FHA home loan if you:

Have a FICO score of at least 500.

Can verify your employment for the past two years.

Can verify your income through pay stubs, tax returns, and bank statements.

Will use the loan to buy your primary residence.

Have a front-end debt ratio of no more than 31 percent of gross monthly income (i.e., how much of your gross income is spent on housing costs).

Have a back-end debt ratio of no more than 43 percent of gross monthly income (i.e., how much of your gross monthly income is spent on housing costs and other monthly debt payments — credit cards, auto loans, etc.). Your lender could allow a ratio of up to 50 percent in some cases.

Not have loans in CAIVRS. If your federal loans are in default — even if they’re not on your credit report — you’ll need to bring your loans current before you’re eligible for an FHA Loan. Read this Guide to Student Loan Default to learn your options.

Student Loan Guidelines for Home Buying

FHA uses the payment listed on the credit report or account statement, but if the loan is deferred or forbearance, the lender will use 0.5% of the outstanding balance.

Fannie Mae-backed conventional loan accepts the monthly student loan payment listed on a credit report or account statement. If the loan is in deferment or forbearance, the lender will use either 1% of the balance or one monthly payment.

Freddie Mac-backed conventional mortgage allows borrowers to use either the payment on their report or account statement. If the loan is deferred or forbearance, the lender must use .5% of the loan balance.

USDA uses the payment on your credit report or account statement unless your loan is deferred, in forbearance, or in an IDR payment plan. In this case, the underwriter will use either .5% of your loan balance or the current documented payment under an income-driven repayment plan.

VA loan lets lenders use the payment listed on the borrower’s credit report or account statement, or 5% of balance divided by 12 months, whichever is higher. If the loan is in deferment, then the underwriter doesn’t have to include the debt.

Although purchasing a home is an exciting endeavor, if your student loan debt is excessive compared to your income, it may prevent you from becoming a homeowner, even with excellent credit. Thankfully, the modifications to the FHA student loan have made it simpler to qualify for a mortgage. Even so, problems with recording your repayment strategy and the need to exit default will arise during the home buying process.

Call me to talk about your loans and develop a strategy for getting you into a home.

FAQ

What are FHA guidelines for student loans?

How are student loans calculated for a mortgage 2022?

In addition, the lender must figure each loan’s interest rate at 5% of the outstanding balance divided by 12 months (for illustration, take a $25,000 student loan balance multiplied by 5% to get $1,250; divide that by 12 months to get $104). 17 per month).

Can you get an FHA loan as a student?

FHA loans may also give you a lower interest rate. Most of these mortgages have fixed interest rates, making it possible for people, including qualified students, to borrow up to 96 5% of the purchase price of the home. This reduces supplemental expenses like closing costs.

Does FHA count deferred student loans?

Deferred student loans cannot be excluded from your debt-to-income ratio under FHA guidelines. In fact, the lender must raise the monthly payment to 1% of the balance and use that to qualify if the monthly payment shown on your credit report is less than 1% of the total balance of your student loan.