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My wife and I are considering selling our current home and using the equity to pay off revolving debt and put money down on a new home. I have found conflicting information on how student loan debt affects the ability to be approved for an FHA mortgage.
We are both currently on income based repayment for our student loans. Will that payment amount be used in the DTI calculations, or will it be 2% of the balance of the loans? If the lender wouldn't take the IBR payment, there is no way we would qualify. If we can't qualify a new morgage, then we definitely do not want to sell our current home.
I've seen some information saying that it depends on the lender - is that correct? I'm really trying to nail down an answer before we decide to sell.
Thank you!
this thread might help you
It was going to be 2% but then someone realized that was too much so it was changed to 1%
If you can get in before June 30th you may find a lender still allowing the IBR but as that date draws near I think we will see less and less
Once the date comes it will be the standard for now
Good Luck
B
Hi Brian,
I am working to improve my credit scores (in the process of a divorce) in hopes of purchasing a home as soon as possible. I am currently working on my Ph.D, and I have a fairly large amount of students loans. The majority of my student loan balance ($75,000) is on IBR with a monthly payment of $0. However, I have another approximately $20,000 in loans that are in deferrment.
After reading your previous post, it appears that when I apply for a mortgage, my student loan payment will be calculated at $1000 per month? Is this correct? If so, why are students essentially being penalized for pursuing an education. I truly hope that I have misunderstood.
Have you considered conventional financing? The other replies are correct that FHA is changing, however conventional is still possible with Freddie. Since you're selling your current home I presume that you have more than a minimal downpayment available. If you have decent scores, a conventional loan will be much cheaper than FHA and IBR isn't an issue.
@Anonymous wrote:My wife and I are considering selling our current home and using the equity to pay off revolving debt and put money down on a new home. I have found conflicting information on how student loan debt affects the ability to be approved for an FHA mortgage.
We are both currently on income based repayment for our student loans. Will that payment amount be used in the DTI calculations, or will it be 2% of the balance of the loans? If the lender wouldn't take the IBR payment, there is no way we would qualify. If we can't qualify a new morgage, then we definitely do not want to sell our current home.
I've seen some information saying that it depends on the lender - is that correct? I'm really trying to nail down an answer before we decide to sell.
Thank you!
As long as your IBR payment is NOT $0, FHA will use the actual payment. If you have say a $64 IBR payment or a $123 IBR payment, those are the numbers that FHA will use. If y our IBR is $0, then you will need to go by the percentage. HTH, I am currently going through this as we speak!
Or maybe I should have read everyone else's answers... lol. Looks like it's changing and I'm just getting through under the wire! WOW!!!!
When FHA changes their rules on 6/30, Freddie Mac will be the only one that will allow using the payment on the credit report.
FHA will calculate as follows:
Regardless of the payment status, the Mortgagee
must use either:
The GREATER of:
- 1% of the outstanding balance on the loan;
or the monthly payment reported on the
borrower’s credit report; or
- The actual documented payment provided
the payment will fully amortize the loan
over its term
@Anonymous wrote:When FHA changes their rules on 6/30, Freddie Mac will be the only one that will allow using the payment on the credit report.
FHA will calculate as follows:
Regardless of the payment status, the Mortgagee
must use either:
The GREATER of:
- 1% of the outstanding balance on the loan;
or the monthly payment reported on the
borrower’s credit report; or
- The actual documented payment provided
the payment will fully amortize the loan
over its term
WOW! I haven't been paying attention to the mortgage section for a while, so I missed out on seeing the change.
This new way of handling those on IBR plans is going to be a death blow for a lot of new grads and self=employed (like myself) looking for a mortgage.
Luckliy, my wife has a W-2 job with no student loans and a good income, otherwise we would not be buying a house for a LONGGGG time.
Thanks so much for the replies!
So if I am understanding correctly, it sounds like we need to look into a conventional mortgage with Freddie Mac, as that may allow us to be approved using the payment amounts that are listed on our credit reports (which are currently income-based). Is that difficult to get? The down payment shouldn't be a problem, as we should have enough from the sale of our current home to pay off credit card debt and provide a down payment.
The main issue would by fitting within the DTI ratio. My wife is a stay at home mom, so we would be qualifying on my income only. We can do that using IBR on the student loans, but not standard payments (or 1%) as that would put us way outside of the ratios.
If all else fails, she can go back to work full time, but we are trying to avoid putting our toddler and infant into day care, so that would be the least preferred option.