HUD came out with three important changes to FHA loans. Specifically regarding how they underwrite student loan payments used to calculate a debt to income ratio.
These changes take effect August 16, of 2021.
1) Previous rule: If you have a student loan we have to use at least 1% of the balance as a payment towards the debt to income calculation. Even if the loan is deferred.
Change 1: If a borrower has an income based payment now all we need is the paperwork from the servicer showing the new payment.
Change 2: We may now may exclude the payment from the Borrower’s monthly debt calculation where written documentation from the student loan program, creditor, or student loan servicer indicates that the loan balance has been forgiven, canceled, discharged, or otherwise paid in full.
Change 3: In the absence of an income based payment we will now use one half of one percent (0.005%) of the loan balance to calculate a payment.
These are welcome and important changes to anyone applying for a mortgage that has student loans. People who couldn’t qualify for a loan due to a high debt to income ratio, may now qualify depending on their ratio using this new calculation.
That’s it for today!
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