So, if you’re like nearly every other Millennial applying for a mortgage today, you have this one thing in common – massive student loan debt.
As college tuition rates have skyrocketed and the need for a degree has become more and more important in a challenging job market, many students have graduated saddled with thousands of dollars in student loan debt. It’s a growing problem in the housing industry, because it keeps many potential home buyers on the sidelines, paying ever higher rent costs. The rent costs also keep them from saving money or paying off their student loans more quickly.
In real world dollars, American students have to borrow twice as much today as they did twenty years ago. The total student debt threshold has increased 400% in the same time period. Instead of owning a home, people are stuck paying for college expansion and exorbitant salaries for college chancellors and coaches.
HUD has recently offered some relief, though, with a relaxed FHA student loan debt obligation requirement.
Directly from HUD:
Mortgagees must use the guidance in Mortgagee Letter (ML) 16-08 for case numbers assigned on or after June 30, 2016.
The Mortgagee must include the monthly payment shown on the credit report, loan agreement or payment statement to calculate the Borrower’s debts.
If the credit report does not include a monthly payment for the loan, the Mortgagee must use the amount of the monthly payment shown in the loan agreement or payment statement.
If the monthly payment shown on the credit report is utilized to calculate the monthly debts, no further documentation is required.
If the credit report does not include a monthly payment for the loan, or the payment reported on the credit report is greater than the payment on the loan agreement or payment statement, the Mortgagee must obtain a copy of the loan agreement or payment statement documenting the amount of the monthly payment.
Calculation of Monthly Obligation – regardless of the payment status, the Mortgagee must use 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 the actual documented payment, provided the payment will fully amortize the loan over its term.
If you aren’t deferring a student loan, it’s then considered an installment loan. FHA will then count the actual monthly payment towards the obligation.
This also includes the monthly payment for a loan obligation paid under an income-based repayment plan. That can include an actual monthly payment of $0.
So what does this mean in practical terms?
Previously, it was required by underwriting that 2% of the balance on your deferred student loans had to be used to qualify for a mortgage. That was if you couldn’t show a monthly statement for at least 12 months prior to close. They just dropped it to 1%.
Since Sallie Mae has about 92 million borrowers, they didn’t always have your info immediately. They also weren’t able to get the information to save that 2% deferment, or were only able to defer for 8-10 months.
Many of these led to deferments being messed up, or the loan not closing.
It’s a baby step, but a step regardless. It’s good for the entire industry when a borrower can buy a house. Since Millennials can be the largest part of the housing market if they are freed up to buy, imagine them with an average of $8,900 a year in their pocket!
Millennials, call us today and we’ll walk you through the process. Take advantage of lower mortgage rates to buy your first home. Call us in St. Louis at (314) 781-9700, Chicago at (773) 770-6438, or Indianapolis at (317) 550-1515. You can always apply online at www.thehomeloanexpert.com, and we’re also open on Saturdays to better serve you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?