New changes with FHA loans

A person’s debt to income ratio is the amount of debt a person (in monthly payments) has in relation to their monthly income. A lender will determine how much a person may borrow based on their debt to income ratios. Typically lenders like to see no more than a 45% debt to income ratio although they may be able to approve a loan with slightly higher ratios based on credit scores and loan product.

Buyers who have student loan debt have been able to purchase a home and not count anything towards their debt to income ratios if the student loan is deferred. As of September 14, 2015, this rule has changed for buyers using a FHA loan. They will now need to count a payment for the deferred loan amount.

Since there is no payment made on a deferred student loan, FHA has come up with their own formula for a payment. That is to take 2% of the total amount due on the loan and make that the monthly loan payment amount. This means that a borrower with a student loan debt of $20,000 would be assessed $400 a month in debt. A person with $100,000 in student loan debt would be assessed $2000 a month in debt. This amount would be added to their other debts in equating their debt to income ratios.

As you see this could cause a borrower who would have qualified under the old rules may no longer qualify under the new guidelines.

So what is a person to do? If the borrower were to stop the deferment and request a monthly payment amount, then the actual payment amount could be used instead of the 2% rule. The student loan authority does have payment plans based on current income. Under IBR (Income Based Repayment), your monthly payment amount will be less than the amount you would be required to pay under a 10-year standard repayment plan, and may be less than other repayment plans. Although lower monthly payments may be of great benefit to a borrower, these lower payments may result in a longer repayment period and additional interest. http://bit.ly/1F0PGzD

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