May 19, 2014
A reader asks, “I am trying to purchase a property through the first time home buyer’s program. I have student loans that are in deferment for two years because that is the time I will be graduating and my school provided a letter confirming this to the loan officer.”
“The loans has been deferred before i submitted my loan documents so therefore, one deferment will be end in October, 2014 and the other December, 2014 but they will be placed in deferment again for another year until I end school. The closing of this property is June, 2014. Will this pose a problem or can the sworn letter from the school be used.”
The reason this question is important in the FHA home loan process is because when your loan officer calculates a debt-to-income ratio, if the student loans which are to be deferred were actually counted in the debt-to-income ratio, the amount of debt might be too high for the lender to approve the loan.
But FHA loan rules do provide for cases like this reader question where the loans aren’t to be an actual part of the borrower’s debt picture for some time.
The rules covering this issue are found in HUD 4155.1, Chapter Four, Section C. There, we find the following instructions to the lender:
“Debt payments such as a student loan or balloon note scheduled to begin or come due within 12 months of the mortgage loan closing must be included by the lender as anticipated monthly obligations during the underwriting analysis.”
But what about the deferrment issue? Chapter Four says the lender has the ability to overlook the loans if the borrower can show the deferrment will be in place under the right parameters.
“Debt payments do not have to be classified as projected obligations if the borrower provides written evidence that the debt will be deferred to a period outside the 12-month timeframe.” There’s a burden of proof placed on the FHA borrower–the reader will need to provide documentation for the lender in order to keep the deferred student loans out of the debt-to-income ratio calculation.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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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