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

[ShanetheMortgageMan]

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.

[Anonymous]

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

[Anonymous]

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.

[Anonymous]

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@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.

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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.

[Anonymous]

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.

[Anonymous]

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. 😢😢

[Anonymous]

Well that sux....

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

[Anonymous]

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"

.

[ShanetheMortgageMan]

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.

[mrsjr]

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