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I'm wondering if anyone has any experience with FHA loans and how deferred student loans are factored into the qualification process.
To give you background, my husband and I are in the process of qualifying for a mortgage to purchase a home. We sold our home this past Sept. because we relocated for my husband's new teaching job. This will be our 4th house purchase and all past ones we went with conventional loans. For our last 2 mortgages, we went with stated, fast and easy loans which, obviously by the name you can tell, were very fast and easy with little documentation. Our previous house purchases were before the housing crash so we knew that this time around it would be more difficult but didn't realize just how difficult. The realtor I'm working with gave me some recommendations for lenders in the area (at my request) and we went with one of them (a mortgage broker). We found out that due to my husband's student loan which has to be counted as debt at 1% of the balance due (even though it is in deferment), our debt to income ratio is too high to qualify for a conventional loan so we have to go with an FHA loan. The lender said that if we went with an FHA loan the student loan wouldn't be counted as debt. But then the next day in an email he wrote that a student loan isn't counted as debt in an FHA loan if the student loan is "in deferment for at least one year". That is obviously not the same thing at all and since we applied for deferment a couple of months ago in Dec, we do not meet the criteria of at least one year. I asked for clarification on it and he said that technically yes they are only not counted when they are in deferment for at least one year but he said it wasn't a problem because all my husband had to do is call the student loan people and ask them to extend the deferment. I told him that you can only request deferment one year at a time and that I didn't think they would be willing to just extend it upon request just so we could buy a house. The guy said that's not true since he's had many clients request their student loans be extended for an FHA loan and they had no problem doing so. My husband is going to call his student loan processor (or whatever it's called) and ask if this is true but in the interim, I thought I'd post here and see what I could find out. I just don't see how it could be true since it's a federal student loan with payback guidelines.
Anyone out there know if what this guy is saying about getting an extension on deferment is possible? I'm leery of going with an FHA loan because we have excellent credit and more than a 20% down payment from the sale of our last home so I don't want to have to pay the insurance premium at close and monthly PMI insurance required of an FHA loan. It's the 1% of the student loan being counted as debt that is a problem and that's not going to change any time soon even though our repayment plan is substantially lower than 1% for many years.
Im not on FHA but something like it, My mortgage is USDA rural development and they take into account my student loans even though they are in deferment.
If you have a documented payment that is less than 1%, that should be counted as the payment for the loan. That's how the USDA works which kinda follows the same guidelines. If you don't have a documented payment, they'll take the 1%. My student loan payments are far less than 1% of the balance, so they were able to use that number.
My question is whether or not anyone has heard of or had personal experience with successfully asking a student loan lender to give an extension on a deferment in order to meet the "at least one year in deferment" requirement on FHA loans for the student loan payment to not count in the debt to income ration when qualifying? I was told that the area we're looking to buy doesn't qualify for rural development so it's either conventional or FHA. The broker I'm working with wrote this in an email:
"I did some research of how conventional now treats student loans. Below is the rule:
For all student loans, whether deferred, in forbearance, or in repayment (not deferred),the lender must use the GREATER of the following to determine the monthlypayment to be used as the borrower’s recurring monthly debt obligation:
•1% of the outstanding balance; or
•the actual documented payment (documented in the credit report, in documentation obtained from the student loan lender, or in documentation supplied by the borrower).
If the payment currently being made cannot be documented or verified, 1% of the outstanding balance must be used. Exception: If the actual documented payment is less than 1% of the outstanding balance and it will fully amortize the loan with no payment adjustments, the lender may use the lower, fully amortizing monthly payment to qualify the borrower. This means that just getting an amount assigned as a payment will only work if that amount will pay the loan off (fully amortize) with no further adjustments. Note that FHA does not do it this way. If is deferred for at least one year, you do not have to include in the debt to income ratio."
There's another factor here, and that is a hardship forbearance - if this comes up as a "hardship" request to defer, you will have issues. If you are in a hardship where you can't pay your student loans, the underwriter assume paying a mortgage is a hardship as well.
After writing the broker an email asking many specific questions about costs, etc. of an FHA loan, my husband and I decided that we're not willing to pay all of the extra money required in the one time insurance premium at close and the monthly insurance payment that is required over the life of the loan so we're going to go with a conventional loan even though we won't qualify for as much. Thanks to those of you who posted.
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