FHA Mortgages

Modifications To FHA Residence Mortgage Coverage: Scholar Mortgage Debt


The official website of the Department of Housing and Urban Development has released a press release announcing a major revision of the FHA single-family home loan guidelines in HUD 4000.1, which discusses how a participating FHA lender should consider student loan debt as part of the loan approval process .

Prior to the release of HUD 4000.1, the FHA Single Family Loan Handbook, the FHA loan rules “did not address how mortgage holders should calculate future payments of deferred student loan debt that, when due, could adversely affect a borrower’s long-term repayment ability “. their mortgage and other monthly obligations, ”according to the HUD press release.

In addition, the FHA loan rules did not separately account for deferred and non-deferred student loan debt.

When HUD 4000.1 was released to replace HUD 4155, the FHA loan rules were changed to require a participating lender to charge a monthly payment for student loan deferrals “equal to 2 percent of the outstanding balance and add that payment amount to the debt- Borrower’s Income Payment Record (DTI) Quota for Qualification Purposes ”.

In 2016, the FHA released Mortgage Letters and revised HUD 4000.1 to change the payment calculation to either the greater of one percent of the outstanding balance of the loan OR the monthly payment indicated on the borrower’s credit report OR the “actual documented payment, provided the payment will fully amortize the loan over the term ”.

However, in the FHA Mortgagee Letter 2021-13, the guidelines for student loans are changed again.

The HUD press release states: “Recognizing the increasing number of student loan payment plan alternatives offered by the Department of Education, including plans with variable repayment plans based on the borrower’s income, HUD is adjusting the policy options available to calculate the student’s monthly commitment Loan liabilities. “

The changes are designed to help borrowers gain access to credit while ensuring that an FHA loan applicant has the “long-term ability to repay their debts”.

What changes are there in the new rules? A section titled Documentation Required and Monthly Commitment Calculation of HUD 4000.1 has been changed to allow for alternative payment options and also includes a definition of the term “student loan” in relation to “educational debt”.

Under the new rules, the lender is required to “include all student loans in the borrower’s liabilities, regardless of payment type or payment status”.

In cases where the student loan payment is less than the monthly payment indicated on the applicant’s credit report, the lender must provide “written documentation of the actual monthly payment, payment status, and evidence of the outstanding balance and terms from the lender obtain or broker for student loans. “

Here is an important aspect of the new rules – the lender is allowed to exclude a payment from the debt-income ratio of the borrower “if written documents from the student loan program, the lender or the student loan service provider show that the loan balance has been paid, canceled, dismissed or otherwise paid in full. ”

In the case of outstanding student loans, the HUD now instructs the lender to “use the payment amount shown in the credit report or the actually documented payment if the payment amount is greater than zero OR 0.5 percent of the outstanding loan balance if the monthly payment” in the credit report of the Borrower reported is zero. “