If student loan debt has kept you from getting an FHA mortgage in the past, we have some good news. The Department of Housing and Urban Development (HUD) recently announced that the Federal Housing Authority (FHA) has relaxed the rules on how it assesses student loan debt, making FHA home loans much more favorable to borrowers who are paying off student loans.
What are the new rules?
The FHA removed a requirement that calculated a borrower’s monthly student loan payment as 1% of their outstanding student loan balance. This means that despite being approved for smaller monthly loan payments, borrowers were judged based on 1% of their outstanding loan, which is often a higher number than they were actually paying each month.
How does this change things?
This means the monthly debt calculation for an FHA loan will now be based on what a borrower is actually paying for their student loan each month, rather than assuming they payment is 1% of the loan’s outstanding balance. This is important because qualifying for an FHA loan depends on your monthly debt-to-income (DTI).
What is Debt-to-Income (DTI) and how does it affect me? The debt-to-income ratio is your monthly debt payments (credit cards, car payment, student loans, mortgages) divided by your pre-tax monthly income. With an FHA loan, the DTI needs to be 43% or less before you can qualify, although it can vary based on your credit score.
Does the new rule improve my chances for an FHA loan?
Yes, if you are re-paying less than 1% of your outstanding balance on a student loan each month, the new rule could help you get an FHA loan. Here’s how it works: If someone has $200,000 in student loan debt, but only pays $370 a month in student-debt repayments that is a DTI of 34%. However, under the old rule, 1% of $200,000 would have been counted as a payment of $2,000 a month, bumping the DTI up to 76% and disqualifying the borrower from the FHA loan.
How do I apply for an FHA loan?
The FHA mortgage loan is designed for low to middle income borrowers. You can qualify for an FHA home loan with a poor credit score and a down payment as low as 3.5%. If you think an FHA home loan may be right for you, contact a Resource Financial mortgage banker today at rfsmortgage.com. They will walk you through your options and help you apply for the home loan that’s right for you.
Our mortgage bankers are always available to answer any questions you have. With years of expertise and knowledge of the ins and outs of home financing, they are here to advise you on all things related with your home loan, including the best mortgage option for you and your family!
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At Resource Financial Services, we love making people’s dreams of home ownership a reality. Visit us online today at rfsmortgage.com to get started. Then contact a Resource Financial Services mortgage banker at 877.797.4545 to discuss your mortgage options and your financial goals. Let us guide you through the process and welcome you home to a better mortgage.