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Last updated on July 4th, 2022 at 08:56 am
The Federal Housing Administration publicized a new approach to calculating student loan debt.
This makes it easier for student loan borrowers to qualify for FHA mortgage loans, and also to qualify for larger loan amounts.
If a borrower has student debt, then to determine their eligibility for an FHA loan the mortgage lender will take it into account.
The student debt also impacts their debt-to-income ratio (DTI), thereby becoming a deciding factor of how large of a home loan they can qualify for.
If a borrower is currently making student loan payments, then the payment amount on their credit report will be included in their debt-to-income ratio.
FHA will use the lower payment number for qualification if a borrower pays less than the amount on their credit report, and they can prove it.
FHA will estimate a monthly payment equal to 0.5% of their outstanding student loan balance if their loan is in deferment or their credit report shows a $0 payment.
Even if it is good news, student loan borrowers should know about the Credit Alert Verification Reporting System (CAIVRS) which might be a hindrance for them to qualify for getting a mortgage.
CAIVRS shows when a person is late or defaults on federal debt. If the borrower has had late payments on their federal student loans, they’ll be automatically disqualified from getting an FHA mortgage even if their monthly payments are low.
If a borrower is behind on a federal debt they can
- Negotiate a settlement with their loan servicer
- Try loan consolidation
- Enter into a loan rehabilitation program
The FHA’s goal is to make home-buying more accessible for homebuyers at any level. So a borrower can check their eligibility with an FHA lender and take advantage of the loan.
Reference Source: The Mortgage Reports
