topic Re: FHA Loan and 10 month debt exclusion in Mortgage Loans

FHA Loan and 10 month debt exclusion

Anonymous — Tue, 29 Mar 2016 16:07:14 GMT

Hey all,

I am in the beginning process of seeking a FHA loan approval. I was told by my mortgage consultant that all debt must be included, even if there is less than 10 months remaining.

Specifically she stated, "All debts including ones that have 10 or less payments must be counted. Also including deferred student loans. The underwriting guidelines have changed over the years."'

I have a 200 debt that will only have 7 months left and I really did not think it would be counted towards my DTI.

Is what she is saying true, or are these more than likely the rules for the lender(s) she deals with?

Thanks for your help!

Re: FHA Loan and 10 month debt exclusion

StartingOver10 — Tue, 29 Mar 2016 16:11:49 GMT

@Anonymous wrote:
Hey all,

I am in the beginning process of seeking a FHA loan approval. I was told by my mortgage consultant that all debt must be included, even if there is less than 10 months remaining.
Specifically she stated, "All debts including ones that have 10 or less payments must be counted. Also including deferred student loans. The underwriting guidelines have changed over the years."'
I have a 200 debt that will only have 7 months left and I really did not think it would be counted towards my DTI.
Is what she is saying true, or are these more than likely the rules for the lender(s) she deals with?

Thanks for your help!

Sounds like lender overlays. Each lender can have overlays that are more, not less, restrictive than regular FHA guidelines.

Also sounds like you made application with a big box bank, right?

Re: FHA Loan and 10 month debt exclusion

Anonymous — Tue, 29 Mar 2016 16:26:07 GMT

The guideline was tweaked when the new 4000.1 HUD Handbook was released. The guideline reads:

"All applicable monthly liabilities must be included in the qualifying ratio. Closed-end debts do not have to be included if they will be paid off within 10 months and the cumulative payments of all such debts are less than or equal to 5 percent of the Borrower’s gross monthly income. The Borrower may not pay down the balance in order to meet the 10-month requirement."

It sounds like the lender didn't explain it very well, but that may be the holdup.

Re: FHA Loan and 10 month debt exclusion

Anonymous — Tue, 29 Mar 2016 16:27:04 GMT

I haven't actually applied. I have been working with a mortgage consultant and she has been reviewing my information and looking over my debt and income. The next step would be the official application which I am not sure I want to move forward with, given the fact she is going to be including my debts that have less than 10 months.

I do have deferred student loans, would it be worth it to take them out of deferment for the future application, or do banks just require some sort of statement showing what the payment will be?

Re: FHA Loan and 10 month debt exclusion

Anonymous — Tue, 29 Mar 2016 16:57:03 GMT

So just to clarify,

When they say cumulative payments it means that if I have multiple payments with less than 10 months they cannot exceed 5% of my income. I only have ony payment I am looking to exclude, it is $197 per month and it has 7 months remaining. The $197 is less than 5% of my gross monthly income. So technically, this should be able to excluded if a lender goes by the FHA guideline above?

Re: FHA Loan and 10 month debt exclusion

Anonymous — Tue, 29 Mar 2016 16:56:45 GMT

$197 times 7 payments would have to be under 5% of your gross monthly income. This means your monthly income would have to be over $27,580.

Re: FHA Loan and 10 month debt exclusion

StartingOver10 — Tue, 29 Mar 2016 18:35:27 GMT

^^^It's why I love this site...learn something new every day.

Question for dpeezy: if the OP hasn't make application yet AND doesn't make more than $27,580/month gross income can the applicant make a payoff of the installment loan (or pay it down to one or two payments) BEFORE mortgage app to avoid this new rule? I see it says paydown not allowed, but what I mean is does that notation apply to those that have already made application or within a time period prior to loan application?

EDIT: I notice you are using the term 'mortgage consultant'. Is this consultant affiliated with a lender or an independent mortgage consultant that isn't NMLS licensed?

http://mortgage.nationwidelicensingsystem.org/about/pages/nmlsconsumeraccess.aspx I am just asking out of curiosity.

Re: FHA Loan and 10 month debt exclusion

Anonymous — Tue, 29 Mar 2016 18:46:35 GMT

@StartingOver10 wrote:
^^^It's why I love this site...learn something new every day.

Question for dpeezy: if the OP hasn't make application yet AND doesn't make more than $27,580/month gross income can the applicant make a payoff of the installment loan (or pay it down to one or two payments) BEFORE mortgage app to avoid this new rule? I see it says paydown not allowed, but what I mean is does that notation apply to those that have already made application or within a time period prior to loan application?

EDIT: I notice you are using the term 'mortgage consultant'. Is this consultant affiliated with a lender or an independent mortgage consultant that isn't NMLS licensed?
http://mortgage.nationwidelicensingsystem.org/about/pages/nmlsconsumeraccess.aspx I am just asking out of curiosity.

There is no problem if they decide to pay the installment loan off before an application simply because they want to reduce their debt.

Re: FHA Loan and 10 month debt exclusion

Anonymous — Thu, 31 Mar 2016 14:57:00 GMT

This is my first home purchase so I am not too familiar with the terminology and differences. However, I was able to find her through the link you provided.

Re: FHA Loan and 10 month debt exclusion

Anonymous — Thu, 31 Mar 2016 15:00:49 GMT

Also, thanks for this information! Now I know I need to work on paying that debt off before I officially app!