FHA Makes Big Changes

Filed under: FHA Loans

This morning I want to talk about a big change the FHA made regarding calculating student loan debt. It’s probably not a surprise that student loan debt is getting in the way of a lot of people buying houses – especially for first time homebuyers.

FHA is one of the most difficult to deal with. Basically, what they’ve always said: regardless of what the monthly payment is, we have to calculate 1% of the total outstanding balance per month as a payment. So, if someone has $100,000 in student loans (which isn’t that big compared to what we are seeing these days), it’s calculated as a $1,000/month payment. This applies even if they are on an income-based repayment program, which a lot of people are on and often drops the payment to $100 or $200.

How FHA Loans are Changing

Now, FHA is getting in line with the conventional guidelines. They are changing the calculations. If the student loan is in deferment or there is no payment showing up, then we only have to use ½ percent of the outstanding balance towards the payment. Using the same $100,000 loan example, this calculation is only a $500 payment for the calculation compared to the original $1,000 payment.

For people in an income-based payment program for student loans: now we can use whatever the payment is that is showing up. Even if it’s $100, that’s what we use for the calculations.

I’m looking through my pipeline right now and see a bunch of people who can now qualify who previously couldn’t get an FHA loan because of their student debt.

Interesting Timing: Current Real Estate Trends

The timing of this change is odd since the real estate market is on fire. There are so many buyers for every available house, and this change could make that potentially more challenging. But it isn’t going to last forever. The market will loosen up at some point. In some areas, inventory is starting to come up a little bit.

Longer term, this change will be a great thing for first time homebuyers. They can still do a 3.5 percent down program, but have a much more favorable calculation for the student loans.

If you know someone who has student debt and is looking to buy their first home, then please share this information with them. I’m always here to answer questions and help you find the right financing solutions.

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