topic Re: FHA changing student loan payment calculations (effective after 6/30/16) in Mortgage Loans

FHA changing student loan payment calculations (effective after 6/30/16)

ShanetheMortgageMan — Thu, 14 Apr 2016 15:32:53 GMT

Yesterday, on April 13, 2016, HUD announced that FHA loans will change the way student loan payments will be calculated. This will make FHA's guidelines similar to Fannie Mae, Freddie Mac, and USDA (note: VA still has their own calculation). The effective date of this change is after June 30, 2016, but lenders may start using the new policy immediately (for FHA case #'s ordered on June 30th, 2016 or before, and for existing FHA case #'s that have already been ordered, meaning loans currently in process can be subject to this change).

The official announcement can be found at http://portal.hud.gov/hudportal/documents/huddoc?id=16-08ml.pdf

Starting after June 30, 2016 (so starting on July 1st, 2016), the amount FHA will require mortgagees to use as the student loan monthly payment will be either:

The greater of:

1 percent of the outstanding balance on the loan; or
the monthly payment reported on the Borrower’s credit report; or

Or:

the actual documented payment, provided the payment will fully amortize the loan over its term.

So in the example where someone has a $75k student loan and the fully amortized payment is $600, the payment that will be used to qualify is $600/mo. However if a $600 payment was an income based repayment (IBR) or interest only payment, then those do not fully amortize the loan and then the payment that would be used to qualify would be the greater of 1% of the loan ($750) or the monthly payment reported on credit (whatever that happens to be).

This effectively eliminates FHA being able to use income based repayment plans for student loan payment calculations.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

Anonymous — Thu, 14 Apr 2016 16:12:35 GMT

Thanks for letting us know! Although I still think that 1% is too much of a general number, it's certainly better than 2%.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

Anonymous — Thu, 14 Apr 2016 18:26:29 GMT

If I go to Fed Loan Servicing there is a place to click "Mortgage Applicants" and it'll give you a letter that states the estimated monthly payments. My loans are deferred and the letter from Fed Loan states my payments are going to be less than 1%. which amount will uw use? The letter comes straight from FedLoan servicing so hopefully that'll suffice because 1% is higher than my estimate.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

Anonymous — Thu, 14 Apr 2016 18:47:05 GMT

@Anonymous wrote:
If I go to Fed Loan Servicing there is a place to click "Mortgage Applicants" and it'll give you a letter that states the estimated monthly payments. My loans are deferred and the letter from Fed Loan states my payments are going to be less than 1%. which amount will uw use? The letter comes straight from FedLoan servicing so hopefully that'll suffice because 1% is higher than my estimate.

Unfortunately that letter will not suffice. I submitted the exact same letter from FedLoans and it ended up causing a bit of an issue for me. My lender accepted it but after they submitted my file to USDA for final approval, it was sent back because they would not accept the loan calculations. It pretty much sucks for the vast number of people who are currently deferred or on the graduated payment program. I can't think of anyone I know that is actually paying 1% of their loan balances each month. Geez.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

Anonymous — Thu, 14 Apr 2016 18:50:02 GMT

I dont know how I'd quality for anything if they go by 1%. I have nearly 100k in student loans & I still have another year of grad school.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

Anonymous — Thu, 14 Apr 2016 19:17:30 GMT

I'm about to be living in a shack, my shack, but a shack nonetheless. I have to keep my mortgage payment low in order for my DTI to meet the requirements for the program that I want. Let me get on YouTube and figure out how to renovate my future house on my own. 😢😢

Re: FHA changing student loan payment calculations (effective after 6/30/16)

Anonymous — Thu, 14 Apr 2016 19:26:15 GMT

Well that sux....

My DTI just went from 5.5% to 8.5%..........

Re: FHA changing student loan payment calculations (effective after 6/30/16)

Anonymous — Thu, 14 Apr 2016 20:01:51 GMT

If I am reading this correctly I think that my monthly payment times the excruciating 20 years of loan payments would actually pay the loan in full. So does this mean I can use the letter as proof of the monthly payment? That is the only way I can get my dti in a reasonable range to actually be able to qualify for anything other than a shack.

I think there may be a lot of college graduates living in shacks. Maybe we could start a shack city with well educated people that live there?

"the actual documented payment, provided the payment will fully amortize the loan over its term"

Re: FHA changing student loan payment calculations (effective after 6/30/16)

ShanetheMortgageMan — Thu, 14 Apr 2016 23:17:20 GMT

I've seen some student loan creditors offer an "Extended Level" repayment option, fully amortized payment over 300 payments. Seems to reduce the payment to ~60% of a "Standard Level" repayment.

One student loan creditor defines it as:

Equal monthly payments for up to 25 years, for borrowers with a combined balance greater than $30,000 in either of the federal student loan programs. Loan balances must total more than $30,000 in loans in either the Federal Direct Student Loan Program OR the Federal Family Education Loan Program (they cannot be combined). Private loans cannot be included.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

mrsjr — Thu, 14 Apr 2016 23:18:30 GMT

So what if the IBR payment is what's showing as the payment amount on the credit report????? WIll they accept it?

Re: FHA changing student loan payment calculations (effective after 6/30/16)

ShanetheMortgageMan — Thu, 14 Apr 2016 23:25:05 GMT

@mrsjr wrote:
So what if the IBR payment is what's showing as the payment amount on the credit report????? WIll they accept it?

How much is the payment listed on the credit report & how much is the balance?

If the payment is not at least 1% of the balance, then 1% will be used unless you can prove that a fully amortized payment will be less than 1% of the loan amount. If you can prove it, then the fully amortized payment, which is less than 1%, will be used.

If the payment is at least 1% of the balance, then yes, the payment listed on the credit report will be used.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

DeeWill — Fri, 15 Apr 2016 14:08:31 GMT

Shane,

I will start paying my loans back in the next month and payments have been divided over 25 years but are less than 1%. Will I be okay because it is amortization and provides the grand total to be paid off over 25 years?

Thanks for you help!

Re: FHA changing student loan payment calculations (effective after 6/30/16)

ShanetheMortgageMan — Mon, 18 Apr 2016 07:03:40 GMT

@DeeWill wrote:
Shane,

I will start paying my loans back in the next month and payments have been divided over 25 years but are less than 1%. Will I be okay because it is amortization and provides the grand total to be paid off over 25 years?

Thanks for you help!

From what you described, the payment that will be used is the fully amortized one.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

pifhluk — Mon, 18 Apr 2016 18:43:01 GMT

Do conventional lenders use these guidelines as well?

Re: FHA changing student loan payment calculations (effective after 6/30/16)

Anonymous — Mon, 18 Apr 2016 19:21:36 GMT

@pifhluk wrote:
Do conventional lenders use these guidelines as well?

Yes, conventional lenders use the 1% rule as well.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

pifhluk — Mon, 18 Apr 2016 21:15:40 GMT

This just makes no sense to me. IBR has a payment and the only way that payment goes up is if you make more money (significantly more) so why the bleep would banks use 1% or the standard payment when the actual payment is right there.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

Anonymous — Wed, 11 May 2016 23:59:38 GMT

I am having issues with the broker I am using. I went online to Fed Loan Servicing and printed off the letter for mortgage applicants and it states the estimated payments. The problem is that the broker is telling me that underwriting will not let me use that letter. I called fed loan servicing and they said it could take 2/3 weeks to get another letter from them. The broker is insisting that she has to use 1% of my loan balance because the letter says "estimated payment" on it.

I am in school so loans are deferred.

I thought the letter from fed loan servicing would suffice? If I multiply the estimated payments stated in the letter by 20 years it comes out to well over my loan balance so I just do not see what the problem is. Should I find a different broker or are they all going to tell me the same thing? If they all use 1% as my payment that adds a huge amount of money to my monthly debt and in turn I qualify for very little.

Advice appreciated.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

mrsjr — Thu, 12 May 2016 01:37:18 GMT

@Anonymous wrote:
I am having issues with the broker I am using. I went online to Fed Loan Servicing and printed off the letter for mortgage applicants and it states the estimated payments. The problem is that the broker is telling me that underwriting will not let me use that letter. I called fed loan servicing and they said it could take 2/3 weeks to get another letter from them. The broker is insisting that she has to use 1% of my loan balance because the letter says "estimated payment" on it.

I am in school so loans are deferred.

I thought the letter from fed loan servicing would suffice? If I multiply the estimated payments stated in the letter by 20 years it comes out to well over my loan balance so I just do not see what the problem is. Should I find a different broker or are they all going to tell me the same thing? If they all use 1% as my payment that adds a huge amount of money to my monthly debt and in turn I qualify for very little.

Advice appreciated.

I've done a lot of digging, and it appears that the unfortunate reality is that 1% of your balance is going to be calculated unless you're on a standard repayment plan with a very high monthly payment that fully amortizes the loan. If your loans are deferred, they're going to use the 1% rule because your loan servicer cannot give them an actual payment amount.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

Anonymous — Thu, 12 May 2016 02:35:21 GMT

So what if I am a public servant, in the 10 year forgiveness plan (about 2 years in) on the IBR payment plan. After 10 years they get forgiven, does that factor into this at all? I owe 70k and pay 240 a month, would they use my 240 a month or would they do 1 percent which would be like 700 a month?!?! That would bring my DTI to like 70 percent.

Re: FHA changing student loan payment calculations (effective after 6/30/16)

mrsjr — Thu, 12 May 2016 02:42:09 GMT

@Anonymous wrote:
So what if I am a public servant, in the 10 year forgiveness plan (about 2 years in) on the IBR payment plan. After 10 years they get forgiven, does that factor into this at all? I owe 70k and pay 240 a month, would they use my 240 a month or would they do 1 percent which would be like 700 a month?!?! That would bring my DTI to like 70 percent.

From what I understand, it doesn't matter about future forgiveness. They will still use the 1% rule. If I'm wrong, someone please feel free to correct me.