Living in Houston has advantages. Housing is affordable, there’s no state income tax, you have a low cost of living, and the food choices are fantastic.
We all know a college education is essential, but not everyone can afford it. Student loans are one way to finance college, but they can also affect your chances of getting an FHA loan and buying your new Houston home.
If you have tried applying for an FHA loan with high student loans before, it was quite a hassle and very difficult.
Now that new guidelines have been implemented, it is easier for first-time home buyers to get FHA loan approval.
Let’s look at how student loans may impact your loan application and get familiar with FHA student loan guidelines before applying for a mortgage.
In the past, those with significant student debts had difficulty qualifying for an FHA mortgage.
Borrowers often get rejected on their FHA loan because the rule states that 1% of a borrower's outstanding student loan balance is part of their debt-to-income ratio.
But in June 2021, the U.S. Department of Housing and Urban Development changed the guidelines to make it easier for first-time borrowers to become homeowners. You don’t have to jump through many hoops to get approved for home financing.
Lenders can now use the borrower's actual student loan payment based on an income-based repayment plan.
Based on the new guidelines, lenders are no longer required to calculate a homebuyer's monthly student loan payment based on 1% of the outstanding loan balance or an amortization-based payment.
In exchange, lenders are now allowed to use the following:
.5% of the student loan balance when the reported payment status is zero
The actual payment amount for the student loan
The monthly student loan payment based on the credit report
If you want to learn more, you can contact a Houston mortgage broker and discuss your best options.
Many homebuyers love FHA loans because they are designed for those with lower credit and have lower downpayment requirements than conventional loans.
To be eligible for an FHA loan, you must do the following:
Have verifiable employment for the past two years
Have a FICO score of at least 500
Use the loan to buy a primary home
Income must be verified through pay stubs, bank statements, and tax returns
Have a front-end debt ratio of no more than 31% of your gross monthly income
A back-end debt ratio of no more than 43% of your gross monthly income
Must not have loans in CAIVRS
Houston mortgage lenders calculate your front-end debt ratio by dividing your potential monthly mortgage payments by your gross monthly income. Mortgage payments will include the principal, taxes, interest, and insurance.
The back-end ratio, on the other hand, compares your total debt (including student loans) to your income. Lenders add your monthly debt payments and housing expenses and divide the total by your gross monthly income.
To qualify for a 3.5% downpayment, you’ll need a credit score of 580 or higher.
A steady employment history is preferred, meaning you may have to wait two years before applying for a loan if you are a new graduate.
The answer is No. You will be disqualified from getting an FHA mortgage if you are found delinquent or late with your student loan payments.
Student loan borrowers need to stay current on their student loan payments since the CAIVRS or Credit Alert Verification Reporting System can show lenders if they are late or in default on their student loans.
If you are found in the system, you can either apply for a loan consolidation, negotiate a settlement plan or enter a loan rehab program.
Your credit report and other written documentation may be required when applying for a loan depending on your current financial standing.
Lenders will most likely ask for documents that show your outstanding loan balance, payment status, terms, and required monthly payments.
Student loan debt is normal nowadays. According to the Institute for College Acess and Success, 70% of seniors who graduated from public and nonprofit colleges in 2015 had student loan debt averaging $30,100.
Forbes even reports that student debt is now the second highest consumer debt category, higher than credit card and auto loans.
Paying off your student loans faster will increase your chances of qualifying for an FHA loan. This will lower your DTI, which is what lenders look at during underwriting. Finding a way to increase your income or boost your savings to make extra payments on your student loans would be helpful.
You can also cut down on unnecessary expenses like vacations and frequent trips to expensive coffee shops.
Have you considered your options? You can always buy a smaller home or look for homes in more affordable areas. Who knows, you may find your dream home in a place that you never expect to see it.
An FHA mortgage calculator is a valuable tool you can find online to know how much your monthly payments would be.
Buying a home is a milestone that every American dream about. High student loans may have prevented you from becoming a homeowner before, but new FHA loan guidelines have made qualifying easier.
The recent changes will help more FHA loan borrowers with student debts qualify for a loan and also buy a home at a higher price point.
Are you excited to get started?
Work with our loan experts at Reliance Financial Group of Houston, TX. We can make your dream of becoming a homeowner come true with an FHA loan.
Schedule a meeting by calling or sending us a message today.
We've been helping customers afford the home of their dreams for many years and we love what we do.
Company NMLS: 137288
3501 Rochester Rd
Troy, Michigan 48083
Phone: (248) 687-5250
Hours of Operation: 9:00 AM to 6:00 PM (EST)
Reliance Financial Group Inc strives to ensure that its services are accessible to people with disabilities. Reliance Financial Group Inc has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
Reliance Financial Group Inc makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows rfgusa.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
Reliance Financial Group Inc accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
Reliance Financial Group Inc continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
Despite our efforts to make all pages and content on Reliance Financial Group Inc website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
If you are experiencing difficulty with any content on Reliance Financial Group Inc website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: firstname.lastname@example.org