New FHA student loan guidelines make it tougher to get a mortgage

DEBT PAYMENTS / INCOME

Example: Jessie and Pat together earn $10,000 a month. Their total debt payments are $3,800 a month. Their debt-to-income ratio is 38 percent ($3,800 divided by $10,000).

When calculating the debtto-income ratio, the new rules require lenders to include either the borrower’s actual projected student loan payment or 2 percent of the deferred student loan debt.

For the Sinclairs, who have a 3-year-old daughter, the change meant the difference between buying a home and not.

“We were qualified for $500,000, but when they added the student loans in, we qualified for $100,000,” Cordett-Sinclair says. “We had a case number so that we could still buy before a certain date, but it didn’t work out.”

The couple declined to provide details about the amount of their student loan debt.

DEBT IS DEBT

The FHA Single Family Housing Policy Handbook gives lenders minimum guidelines to approve FHA-guaranteed home loans.

The relevant paragraphs state that lenders must “use the actual monthly payment to be paid on a deferred liability, whenever available,” and that if the actual payment is zero or unavailable for a student loan, the lender must “utilize 2 percent of the outstanding balance to establish the monthly payment.”

“If people were in their deferral period, we didn’t treat that as debt. Now we do because debt is debt, deferred or otherwise,” says Brian Sullivan, a spokesman for the U.S. Department of Housing and Urban Development, the FHA’s parent agency.

PROJECTED PAYMENT

Student loans backed by the federal government typically are deferred as long as the student is in school and for six months after that, says Heather Jarvis, an attorney and student loan consultant in Wilmington, North Carolina.

Private-market student loans are less likely to have a deferral mechanism, particularly when the parents rather than the student take out the loan, Jarvis adds.

For most borrowers, the actual projected payment is likely to be lower than 2 percent of the balance.

That’s true in part because, as Jarvis points out, student loan borrowers can choose from a number of repayment options, some of which are income-based.

“It really is true that with student loans your payment could be a wide variety of numbers depending on what (option) you choose. Estimating it is not going to be super-accurate,” she says.

Greg Cook, a mortgage consultant at Platinum Mortgage in Temecula, California, cites an example of a borrower whose student loans totaled approximately $20,000. The loans were not in deferral and the payment was about $123 each month.

THINKSTOCK Mortgage borrowers who have student loans with deferred payments are advised to find out their projected monthly payments after their deferral periods.