How to Get an FHA Mortgage Even With Student Debt
If student loans got in the way of your FHA mortgage, the good news is that the Department of Housing and Urban Development (HUD) is relaxing its student loan debt assessment rules , which will increase your chances of getting a loan. if you have a repayment plan.
What are the new FHA rules for student debt?
HUD removed the requirement that a borrower’s student loan monthly payment was calculated as 1% of the outstanding student loan balance for loans that are not repaid in full, whether deferred, deferred, or repayment plans. In other words, despite the approval of smaller monthly payments, borrowers were valued based on 1% of their outstanding loan, which is often a much larger number. The Wall Street Journal has a good example of this work:
Dayrick Selvage is one of those harmed by the way his student debt is calculated. With over $ 200,000 in student debt, Mr. Selvidge said he was disqualified for an FHA loan because the program assumed he was paying about $ 2,000 a month in student debt, far more than the roughly $ 370. which he actually pays.
With this change, your monthly debt calculation will now be based on what you actually pay . This is important because eligibility for an FHA loan depends on your monthly debt-to-income ratio (DTI), which is your monthly debt payments (student loans, credit cards, mortgages) divided by your monthly pre-tax income. To qualify for an FHA loan, the DTI must be 43% or less to qualify for, although it depends on your credit rating.
In many cases, DTI rules are too prohibitive for stable income borrowers who consistently repay their loans. For example, if you make $ 4,000 a month and spend $ 1,370 a month on loans (including, say, $ 370 on student loans), that would be a DTI of 34%. However, under the old rules, 1% of $ 200,000 in student debt would count as $ 2,000 per month, which would increase your DTI to 75%, which would not even come close to qualifying for a loan.
How to apply for an FHA loan
The FHA mortgage is for low to middle income families and therefore you can qualify for it with a poor credit rating and a down payment of just 3.5%, although the total loan amount is less than you can get with a private lender. If you are not sure if an FHA loan is right for you, check out this Lifehacker post that walks you through the differences with private loans. For more information on applying for an FHA loan, click here .