Dear Friends – as we all know, college costs can be expensive, and so too can be the student loan debt that accumulates over one’s college career. As a result, many student loan payments are set up as “IBR” (Income Based Repayment) plans. How FHA treats student loan payments in one’s debt-to-income ratio will change significantly as of June 25th, 2016.
FHA Case Numbers assigned:
1) Prior to 06/25/16: Lender can use the current Income Based Re-payment plan
2) As of 06/25/16: Lender must use 1% of the total balance of the student loans unless:
- A)The actual payment is higher than 1% of the balance, then the actualpayment must be used, or
- B)Apayment less than 1% of the balance may be used if the borrower can document that payment is to pay off as a “fixed fully amortizing” loan, with no future adjustments.
3) For “deferred” student loans: Unless documentation of a fully amortized student loan shows otherwise, 1% of the total of the deferred student loan(s) will be counted in the borrower’s debt-to-income ratio
Note: Currently, an IBR student loan re-payment can be $100, $200, $300, even up to $600 less per month than a fully amortizing student loan payment. After June 25th, 2016 some FHA borrower’s with student loan payments will not qualify for as much as they would have prior to the change. Going forward, this method of FHA’s qualifying with student loan debt is consistent with FNMA and RD Loans.
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