From time to time changes in mortgage programs occur and we take seriously our role in providing you with the information needed to make the right decisions regarding buying or selling a home. June 30th of this year marks one of those times where the Federal Housing Administration (FHA) is changing the way deferred student loan debt is being calculated. Because of the popularity of FHA loans – and the prevalence of student loan debt – we wanted to make sure those considering a move understood the change and act accordingly if the current rules are more favorable than the change.
Put as simply as possible (here’s the disclaimer to reach out to a loan professional or ask us to refer you to one of our preferred lenders) prior to June 30th, the existing rule explains:
On deferred student loans, the calculation of the monthly obligation is 1% of the outstanding balance.
So if you owe $50,000 in student loan debt, the amount used to figure out your debt to income (DTI) and help determine how much you would qualify for on a mortgage would be $500 a month.
Moving forward after June 29th the new rule would stipulate:
For case numbers assigned on or after 6/30/2016, for student loans regardless of deferment, FHA would use the greater of:
- 1% of the outstanding balance on the loan
- the monthly payment reported on the borrower’s credit report
- The actual documented payment, provided the payment will fully amortize the loan over its term.
Other changes have also recently gone into effect and their impact on borrowing is varied. The bottom line is this, change in financing is constant. If you or someone you know is considering financing a home reach out to us now so that we can put you in touch with a professional lender that can help you determine whether it’s in your best interest to ACT NOW. Especially if you’re one like many that has – or knows someone that has – student loan debt, reach out and educate yourself on the upcoming changes. Contact Us if we can be of help.
Information is power and we want our clients to be empowered to make the best decisions possible.