Student Loans and FHA Debt to Income Ratio

February 27, 2008 11:35 AM

Does a student loan in deferment count as debt for the purposes of figuring debt to income ratios in an FHA loan?

We're looking at applying for an FHA home loan. I had a lender tell me that my student loans, currently in deferment until graduation in May, then in grace period for six months after that, would be counted against my debt to income ratio now.
The lender says that in order to not have them counted against my debt to income ratio right now, I would have to provide documentation from the student loan lender that they would be deferred from one year of closing date of the mortgage. At best, I think I could only document the current deferment and subsequent grace period (six months after I graduate). As to applying for a forbearance, I don't think I can apply for that until I'm actually in repayment and even at that most lenders, apparently, only grant forbearances for 6 months at a time. It seems weird to count this as debt now, especially since my future income from my full time job which will kick in the future won't be counted.

Is this one-year deferment doc requirement a lender-specific thing or a HUD thing?
Anybody have experience doing this?

posted by Dr. Zira to work & money (3 comments total)

I recently went through a similar process, it was RDA not FHA but i would imagine that the computations are similar. There is really not much than you can do about it. Lenders will count every debt you have and will not count all of your income just to play it safe. When I got my mortgage I was not able to claim on of my bonus or comission income for the calculations because I did not have it documented far enough back.

Just do the math, counting your student loan payment as an installment account (not a revolving debt) and hope that you fall under the 41%.

41% comes from thier guidelines:

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 41%.
posted by prk14 at 1:01 PM on February 27, 2008

My student loans are in repayment and were counted in my debt to income ratio for an FHA loan. My loans are direct from the Dept. of Education, which offers a variety or repayment plans and allows you to change them by request.

Your debt/income ratio is determined by monthly payment amounts. If you can switch from a traditional 10-year repayment schedule to one of the extended or graduated (up to 30 years) plans, you can reduce the monthly payment amount substantially, and that will improve your d/i ratio. Then if you want to repay the loan faster at a later time you can change it back to the 10 year plan.

I don't know if other lenders offer such flexible repayment terms, though. I also don't know if you can select a repayment plan while the loan is in deferment.

Good luck to you!
posted by zepheria at 1:36 PM on February 27, 2008

Some lenders only require you to prove deferrment of six months. I don't know the details of FHA, but it doesn't surprise me that they would have a more strict requirement than Fannie or Freddie. Just remember that a mortgage underwriter always considers worst case scenario and looks at most things with a cynical eye. Thus, not factoring future income in your ratio while concurrently factoring a future debt. The thinking is that the future income is not necessarily a sure thing (in the underwriter's eye) while the student loan payment is a sure thing only one year into your 30 year mortgage.

A similar program to FHA is Fannie Mae's My Community Mortgage or Freddie Mac's Home Possible. You may hint around with your loan officer to see if a six month deferrment would fly with these programs.
posted by curlyelk at 3:50 PM on February 27, 2008