For many potential homebuyers, student loans become an issue. For many, the payments are deferred, especially with covid over the past year. When the payment is deferred, lenders still need to use a payment in qualifying. For some, that has been as high as 1% of the student loan balance. That can be a high payment -imagine student loans over $100,000, now you have a $1000 payment to use in qualifying and that will affect how much you can buy. FHA just adjusted their rules and that will help many people when it comes to buying a home.
FHA has required lenders to use 1% of the balance (even if you have a payment schedule) until now. For many borrowers using FHA financing, this made it difficult to qualify for a home. Now FHA has adjusted their requirements and we only need to use the actual payment if it’s on the credit report or 0.5% of the full balance if the loans are in deferment. This will make it much easier for those using FHA financing to get into a home.
VA has been using 0.5% of the balance or the payment amount on the credit report – whichever is higher.
Conventional loans vary based on Fannie and Freddie. Both Fannie and Freddie allow you to use the payment on the credit report, but if the loan is in deferment, they vary. Fannie still requires lenders to use 1% of the balance on the credit report if there isn’t a payment listed on the credit report. Freddie will allow lenders to use 0.5% of the balance on the credit report. This can allow you to qualify for more home when you are using conventional financing.
Hopefully FHA’s new rules will allow those looking for a home to qualify easier. If you have been looking and have student loans, talk to your loan officer to see if this change affects you.
Leslie Vanderwerf, NMLS ID#335509, Cross Country Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website