August 5, 2021

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How to Qualify for an FHA Mortgage, Even With Student Debt

Illustration for the article titled How To Qualify For An FHA Mortgage Even With Student Debt

photo: David Papazian (Shutterstock)

If student loans have kept you from getting an FHA mortgage, there is good news: The Department of Housing and Urban Development (HUD) is Relaxation of the rules how it rates student loan debts, which increases your chances of qualifying for a loan when you have a repayment plan in place.

What Are the New FHA Rules for Student Debt?

HUD removed a requirement that was calculated the monthly payment of a borrower’s student loan equal to 1% of their outstanding student loan balance for loans that are not fully amortized, be it from deferral, deferral, or from repayment plans. In other words, although borrowers have been approved for smaller monthly payments, they have been judged based on 1% of their outstanding credit, which is often a much higher number. The Wall Street Journal has a good example of this work:

Deitric Selvage is one of the aggrieved by the calculation of his student debts. With more than $ 200,000 in student debt, Mr Selvage 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 Dollars that he actually pays.

With the change, your monthly debt calculation is now based on what you have actually pay. This is important because qualifying 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. On an FHA loan, the DTI must be 43% or less before you can qualify, although it varies based on creditworthiness.

In many cases, the DTI rules are too prohibitive for constant income borrowers who consistently pay off their loans. For example, if you were making $ 4,000 per month and spending $ 1,370 per month on credit (including, for example, $ 370 on student loans), that would be a DTI of 34%. However, under the old rules, 1% of the $ 200,000 student debt would have been counted as $ 2,000 per month, which would have increased your DTI up to 75% – not even close to qualifying for the loan.

How to Apply for an FHA Loan

The FHA mortgage loan is designed for the low to middle income families and as such, you can qualify with poor credit and a down payment of only 3.5%, even though the total loan amount is less than what you get with a. can get private lenders. If you are not sure an FHA loan is right for you check out this Lifehacker post The will guide you through the differences to personal loans. For more information on how to apply for an FHA loan, please visit Click here.