STUDENT LOANS AND REAL ESTATE

Student loans have been in the news recently with lots of talk about forgiving some or all of the outstanding student loan debt in the United States. Many would-be homebuyers aren’t able to qualify for a mortgage loan because of their student loan debt and the effect it has on their debt ratio.

There are two debt ratios that lenders consider before approving you for a mortgage loan. One is the “front-end” debt ratio which looks at all your housing costs (principal, interest, taxes, insurance and HOA payment [if any]). The second is your “back-end” debt ratio where they also include all your other payments like car loans, credit card payments AND student loan payments. For many people, their student loan payment makes their debt ratio too high. There has been a recent change to how FHA looks at student loan payments that may help some buyers. FHA uses 1% of your student loan balance as your payment amount to calculate your debt ratio. They use this number even if your actual payment is lower. Maybe your payment is deferred, or it starts low and rises later, or your payment is tied to your income. Due to a recent rule change, FHA will now start using your actual payment instead of the 1% figure, which is often lower. Source: https://www.thepress.net/student-loans-and-real-estate/article_8e920928-fc73-11eb-bded-0b41dfbb6b6b.html