Yes, it’s possible to bypass the student loan debt and enjoy the mortgage qualification. Once you understand the FHA student loans guidelines, it will be easier for you to succeed.
Before we take you to the procedure, let’s understand what FHA mortgage means. FHA stands for Federal Housing Administration, and it issues loans to people who have a low or medium income. The loan's down payment is low compared to all the other conventional loans for homeownership.
This article will discuss multiple things about the FHA student loan guidelines, and we will also give you a basic idea about the student loan debt and mortgage qualification if you are willing to apply for an FHA mortgage. So let’s get started.
Can you get a mortgage with student debt?
If you have not yet fully paid your student loans and you are still willing to get the federal housing administration mortgage, we have something that’s going to make you happy right now.
The department of HUD (Housing and urban development) is showing some flexibility on how it approves the loans for the people who have already utilized the student loan. It will increase the chances of qualifying for the loan, but new FHA student loans guidelines will also make the procedure easy for everyone.
Student loan debt vs mortgage debt
If you're trying to decide whether to pay off your student loans or put that money towards a mortgage, you're not alone. It's a tough decision, and there are pros and cons to each option.
On the one hand, student loan debt is typically much higher than mortgage debt. That means it can take longer to pay off, and the interest can really add up over time. On the other hand, mortgage debt is typically much more expensive, so it can be a good idea to get rid of it as soon as possible.
It really depends on your personal situation which option is best for you. If you have a lot of student loan debt and you're not sure you'll be able to keep up with the payments, it might be a good idea to focus on that first. But if you have a high mortgage and you're worried about losing your home, you might want to focus on that.
FHA Rules and Regulations For Student Debt and Mortgage Qualification
According to the new rules, the Housing and Urban Development department has suspended the requirement of judging the borrower on the 1% of their unpaid loan. We will explain this rule with the example of Mr. Denial, who applied for the FHA mortgage, and his request was rejected because his student loan was $20,000, and the department assumed he pays monthly $2,000 for the repayment of the loan, according to old FHA student loan guidelines. With such student loan debt, mortgage qualification would be impossible.
However, in reality, he only pays $370, which is far more than the assumed amount. So now, as the rules are modified and according to the new regulations, you will be judged according to what you pay, and to qualify for the loan, they will analyze your income and current debt.
The department will assess all the financial details such as credit card payments, student loans, house building loans, car insurances, and most importantly, your monthly income. You have to be less than 43% or equal to it to qualify for the loan. However, paying student loan debt for mortgage qualification is not enough, and a lot can depend on the credit score, too.
DTI rules are a lifesaver for people who have steady incomes and are paying their loans on time. For your better understanding, look at the example below:
Example: If you are earning $4,000 a month and from that income, you are paying $370 for the repayment of student loan and $1,000 for the other loans, this means according to the new rules, the DTI would be 34%, according to the new FHA student loans guidelines.
On the contrary, if we talk about the old FHA student loan guidelines, they would consider your DTI as 1% of the total loan, which will not even bring you close to the qualification criteria.
Why Is the Debt to Income Ratio So Substantial?
Whether it’s a private mortgage lender or the government, they first want what your monthly debts are. If they are equal to 43% of your monthly income, you might not get your desired loan, or your request might be rejected. However, there is still a chance of getting a smaller loan or lower debt mortgage if you follow FHA student loan guidelines.
FHA Student Loans Guidelines
FHA mortgage loan is for individuals with low family income. Therefore, you can qualify for it with the average credit score and with just a 3.5% down payment. If we talk about the other private loans, they demand more than 3.5% down payment, but there are very few or no qualification criteria.
Before applying for the FHA mortgage loan, do consider the differences between private and FHA loans. It will help you make the best possible decision for yourself.
What Can You Do to Qualify for the FHA Mortgage Loan?
For some people, suspension of the 1% rule is going to help a lot. On the other hand, some people have high student debt, boeing clueless about their future. Don’t worry, we have some solutions for you, and it will help a lot.
- First of all, if your student debt loan is very high, the best thing you can do is wait for the right time and start giving some extra bucks every month, so your loan repayment gets fast. Increasing your repayment by just 1% can effectively help you in qualifying for an FHA mortgage loan.
- Second, avoid overspending with a credit card. Using your credit card as a debit card to improve your monthly income to debt ratio. Buy things that you can afford. Your monthly credit card bills should be significantly less because there is high interest on them, and it can be worse if you are thinking of applying for the FHA mortgage loan.
- Lastly, go for the loans that the federal government does not offer. We would strictly not recommend that because the percentage of interest on these loans is very high, as mentioned earlier but the only plus point of these loans is that they don’t have any specific requirements if your documents are clear.
According to our research and analysis, the FHA mortgage loan is a popular option, and it offers the best deal for people with low incomes. However, after all the changes Fannie Mae has made to the procedure, if you can still not qualify for the FHA loan, you can consider the other options.
Fannie also introduced the home-ready plan that gives you the opportunity of getting a loan with a debt to income ratio of 50% and just a 3% down payment. This program is considered as an alternate to the FHA mortgage loan because the requirements are straightforward.
Giving you the recap of the whole article, keep in mind that the government department's loan depends totally on your current debt and income ratio. Paying off your existing debts will help you qualify for the FHA mortgage loan, and a down payment is significant when it comes to the loans provided by the government.
Here are the essentials about the FHA mortgage loans, and we hope you are now clear about every aspect of the loan. Now it is your turn to evaluate everything before and then apply for the loan, and this will help you save time and effort simultaneously.