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New FHA rules hamper mortgages for student-loan borrowers

By
Amy R. Connolly
The Federal Housing Administration recently made it more difficult for mortgage applicants with outstanding student loans to get low downpayment mortgages.. Photo by karamysh/Shutterstock.
The Federal Housing Administration recently made it more difficult for mortgage applicants with outstanding student loans to get low downpayment mortgages.. Photo by karamysh/Shutterstock.

WASHINGTON, Sept. 19 (UPI) -- The Federal Housing Administration just made it more difficult for first-time homebuyers with outstanding student loans to get low down payment mortgages with changes to the crucial debt-to-income calculation.

The FHA now requires 2 percent of the applicant's outstanding student debt balance to be calculated as part of the DTI ratio -- even if the loans are in deferment. That means FHA lenders must count projected repayment amounts into the borrower's DTI ratio. Too high of a ratio, usually higher than 43 to 45 percent, is considered a bigger risk for defaulting on the mortgage.

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Up until the rules changed on Sept. 14, student loans that were in deferment for at least a year were excluded from the DTI calculations.

The new rules stand to affect millions of millennials and first-time homebuyers. Some 43 million people, most under age 40, owe an estimated $1.2 trillion in outstanding student loan debt. The average balance is about $30,000.

That means a borrower with $30,000 in student loan debt will have a monthly $600 repayment obligation, chipping away at the borrower's DTI ratio.

Brian Sullivan, an FHA spokesman, said the change is a way to put first-time homebuyers "on a path of sustainable homeownership rather than being placed into a financial situation they can no longer afford once their student debt deferment expires."

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"Deferred student debt is debt all the same and really must be counted when determining a borrower's ability to sustain both student debt payments and a mortgage over the long haul," he said.

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