April 14, 2016
Recently we wrote about the new FHA loan guidelines for student loan debt. The FHA and HUD have issued a mortgagee letter updating previous policies.
According to FHA Mortgagee Letter 2016-08, the old FHA loan policy for student loan debt “required Mortgagees to calculate a monthly payment for deferred Student Loans using 2 percent of the outstanding balance, and include the payment in the Borrowers Debt-to-Income ratio for qualification purposes. Further, FHA policy currently does not differentiate between non-deferred Student Loans, which are in payment plans that do not fully amortize the loan, and other Installment Loan debt.”
But now, FHA loan rules have changed, and while the “effective date” for these new policies isn’t until summer, the FHA states lenders can start using the new guidelines right away.
“This guidance is effective for all case numbers assigned on or after June 30, 2016; however, Mortgagees may begin using the policy in this ML immediately. All revisions will be incorporated into HUDs Single Family Housing Policy Handbook 4000.1 (Handbook 4000.1) on June 30, 2016.” The new guidelines include a new set of definitions for both deferred obligations and student loan debt.
Under the new guidance, the FHA loan rules in HUD 4000.1 will reflect the following updated definition for deferred obligations:
“Deferred obligations (excluding Student Loans) refer to liabilities that have been incurred but where payment is deferred or has not yet commenced, including accounts in forbearance.”
Under the definition of Student Loans, we find the following:
“Student Loan refers to liabilities incurred for educational purposes…The Mortgagee must include all Student Loans in the Borrowers liabilities, regardless of the payment type or status of payments…If the payment used for the monthly obligation is…less than 1 percent of the outstanding balance reported on the Borrowers credit report, and less than the monthly payment reported on the Borrowers credit report, the Mortgagee must obtain written documentation of the actual monthly payment, the payment status, and evidence of the outstanding balance and terms from the creditor.”
“Regardless of the payment status, the Mortgagee must use either…the greater of 1 percent of the outstanding balance on the loan; or the monthly payment reported on the Borrowers credit report; or the actual documented payment, provided the payment will fully amortize the loan over its term”.
The FHA has also amended other sections of the rules to exclude student loans from the definition of certain types of recurring debt such as installment loans:
“Installment Loans (excluding Student Loans) refer to loans not secured by real estate that require the periodic payment of
P&I. A loan secured by an interest in a timeshare must be considered an Installment Loan.”
As you can see, this is a major shift away from previous FHA loan policy regarding student loan debt. Borrowers should discuss their mortgage loan transactions with the lender to see how this new guidance may affect a borrower’s FHA mortgage loan application.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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