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FHA Student Loans Guideline Update 2021!

John Thomas June 25, 2021 Tags: , , ,
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FHA Student Loans – HUD just announced new guidelines about how student loan payments should be considered when buying or refinancing a home, to align better
with the current industry standards. This new update makes it even easier to qualify for a FHA Mortgage loan with student loan debt. If you need to apply for a FHA Loan to purchase or refinance call John Thomas at 302-703-0727 or APPLY ONLINE.

These are BIG CHANGES, so we recommend that you have your mortgage pre-approval re-evaluated if you were denied or if you wanted a higher purchase price as the new FHA Student Loan Guidelines could allow you to qualify for a higher mortgage amount.

FHA Student Loan Debt – What has changed?

Effective for all FHA case numbers assigned on or after August 16, 2021, Mortgagee Letter 2021-13 from HUD made the following changes:

However, Mortgage Lenders may begin using the new FHA guidelines immediately.

For Outstanding Student Loans Regardless of Payment Status, Use:

• The payment amount reported on the credit report or the actual documented payment, when the payment amount is above zero; or

• 0.5 percent of the outstanding loan balance, when the monthly payment reported on the Borrower’s credit report is zero.

Example w/ $50K Student Loan Debt

How much FHA would count towards the monthly Debt-To-Income Ratio.

Old RuleNew Rule
$200 CR$500$200
$100 IDR$500$100
$0 IDR$500$250

That’s a $40K increase in purchase power or better chances at mortgage approval.

FHA also allows Mortgage Lenders to exclude student loan payments 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.

If you were previously turned down for a FHA home loan or told you could not qualify due to a student loan payment, let’s talk ,give us a call at 302-703-0727.

These new guidelines toward getting an FHA loan with student loans may help you qualify for the home you are dreaming about!

FHA Student Loans IBR Payments

Can I Use an Income Based Repayment Plan (IBR) payment for FHA Loan?

If you enroll in an Income Based Repayment Plan (IBR) for your student loans, previously FHA would not allow you to use this payment but must use 1% of the outstanding balance. Great News! The New FHA Student Loan guidelines will allow mortgage lenders to use an IBR Payment as long as it is not $0.

Example: If you have $100,000 in Student Loan Debt, old guideline required mortgage loan officers to use 1% which is $1,000 a month payment. Under the new Guidelines, if you enroll in IBR payment plan and the payment is $99 then lenders can use this $99 a month payment versus $1,000 a month payment which is BIG difference for qualifying.

Can I Use the New Student Loan Guidelines for 2021 on FHA 203k Loans?

Yes, the new HUD Guidelines for Student Loans for FHA loans for 2021 do also apply for FHA 203k Rehab Loans.

So if you are looking to renovate or repair your current home or when purchasing a home, you can also use these new guidelines on a FHA Renovation loan commonly called a FHA 203k Loan.

How Do I Apply for a FHA Loan to Use the New Student Loan Guidelines?

If you are looking to get approved for a FHA Loan to purchase or refinance a home in Delaware, Maryland, New Jersey, Pennsylvania or Virginia using the New FHA Student Loan Guidelines, then you can call John Thomas at 302-703-0727 or APPLY ONLINE.

About John Thomas

John Thomas and his team are long-time Delaware natives. They know the local real estate market as well as they know the loan products that help them serve it. Dedicated to helping first-time buyers; the John Thomas Team are experts on first-time buyer loan programs (FHA, VA, USDA) and conduct monthly first-time buyer seminars that have been attended by more than 3000 Delaware buyers.