FHA and Deferred Student Loans
MortgageMack Here and today we’re going to discuss FHA and Your Student Loans.
FHA is a mortgage loan insured by the Federal Housing Administration that requires the borrower to pay mortgage insurance to insure the lender against default. I just completed a Blog Post specific to the FHA purchase and refinance loan called FHA 203b.
Now, for many years, FHA has allowed for the lender to exclude student loan payments in their qualification analysis or what we call debt to income ratio…
if we could prove the student loan payments were deferred for at least 12 months from the day of closing. But,
Today’s FHA requirement differentiate between deferred loans and student loans and we’re going to talk specifically about Student Loans debt.
Student Debt has Reached the Highest it has Ever been in our History.
The average Student Loan debt for the Class of 2017 was $39,400 per student. The total amount owed by American students and their parents is $1.48 trillion spread among 44 million borrowers with a 90 plus days delinquency rate of 11.2%.*
Many economic professionals, I’ve listened to and spoken to over the past years have stated Student Debt is likely to be the next major US economic bubble.**
Now, I’ve had a couple of borrowers with an exceptional amount of total Student Loan obligations and FHA gives me 3 options for declaring that debt on the mortgage application which we’ll analyze now.
So, let’s define Student Debt. FHA refers to Student Loans as a liability incurred for educational purposes. Pretty simple?
FHA also, states all Student Loans owed by the borrower must be included as an active liability with the following requirements.
- If the payment used for the monthly obligation is: a) less than 1% of the outstanding balance reported on the credit report and b) less than the monthly payment reported on the Borrower’s credit report, the lender just obtains written documentation of the actual monthly payment, the status and evidence of balance and term: THEN
- Regardless of the payment status, the Lender must use either the GREATER of: a) 1 percent of the outstanding balance of the loan or b) the monthly payment reported on the credit report unless c) the actual documented payment provided is fully amortized to full term from beginning to end!
Now, as I stated before, I had client with an $80,000 Student Loan and according to the guidelines, I must use the the 1% which $800 and there was no payment reported on the credit report and even if there was and the payment was less than 1%, I still had to use the $800/mo. calculation.
Therefore, I asked my borrower to call the Creditor and request a full amortization schedule for her Student oan, which the servicer obliged and the payment was reduced to $319/mo.
Big difference from $800/mo., wouldn’t you agree?
So, if you have Student Loan debts and are afraid can’t qualify, call me or apply at www.mortgagemack.com and help you with a FREE analysis of your Student Loans.
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