Introduction
Deferred student loans are a common issue for many homebuyers, especially first-time buyers who may still be paying off their education. FHA loans are a popular option for those who need a more flexible lending solution, but how does FHA look at deferred student loans?
FHA Guidelines on Deferred Student Loans
The good news is that FHA has guidelines in place for deferred student loans. According to these guidelines, deferred student loans are treated differently than other types of debt. For deferred student loans, FHA lenders must use either the actual payment, the IBR payment, or 1% of the loan balance as the monthly payment when calculating the borrower's debt-to-income ratio (DTI).
Actual Payment vs. IBR Payment
The actual payment is the monthly payment the borrower is currently making on their student loan. The IBR (income-based repayment) payment is the monthly payment the borrower would be making under an income-driven repayment plan. The IBR payment is usually lower than the actual payment, so if the borrower's actual payment is too high to meet the DTI requirement, using the IBR payment may be a better option.
1% of the Loan Balance
Using 1% of the loan balance as the monthly payment is the last resort option for FHA lenders. This option is used when the borrower's actual payment and IBR payment are both too high to meet the DTI requirement. Using 1% of the loan balance as the monthly payment can be risky for borrowers, as it can result in a higher overall cost of the loan.
Impact on Credit Score
It's important to note that deferred student loans can still impact a borrower's credit score, even if the payments aren't due yet. This is because deferred student loans are still considered debt, and the total amount of debt a borrower has can impact their credit utilization ratio. However, as long as the borrower is making on-time payments on their other debts, the impact on their credit score should be minimal.
Tips for Borrowers
If you're a borrower with deferred student loans, there are a few things you can do to improve your chances of getting approved for an FHA loan:
If you're looking for an FHA lender that understands deferred student loans, Mortgage Brokers Pro is a great option. With years of experience in the mortgage industry, Mortgage Brokers Pro can help you navigate the complexities of FHA lending and find a loan that works for your unique financial situation. They offer personalized service and competitive rates, so you can feel confident you're getting the best deal possible.
Conclusion
Deferred student loans can be a challenge for many homebuyers, but FHA loans offer a flexible solution. By understanding how FHA looks at deferred student loans and working with a knowledgeable lender like Mortgage Brokers Pro , you can increase your chances of getting approved for an FHA loan and achieving your dreams of homeownership.