FHA Requirements Regarding Student Loans

FHA loans are one of the most popular types of loans for home buyers. They have low down payment requirements and the interest rate is not driven based on credit scores. However, FHA does have several requirements that a home buyer must meet prior to approval, especially when student loans are involved.

Repayment History

If you are repaying a student loan, you must show a positive repayment history when applying for an FHA loan. You cannot have any late payments or missed payments for a period of 2 years when the loan is in repayment status.

Deferred Status

If you are not obligated to repay your student loan currently, your student loan balance will still be counted on your debt to income ratio. Depending on the amount of the loan, and the projected repayments this can significantly reduce the amount of the home that FHA will qualify you for.

Forebearance Status

Similar to a student loan being in deferred status, forbearance means that your loan is temporarily forgiven when it comes to repayment. Despite this, however, the amount of your payment in addition to the balance of your student loan will count against your debt and can reduce or eliminate your ability to qualify for an FHA loan. Even if it is in forbearance status, if you have been late or missed payments in the past you will not qualify for an FHA loan.

Debt Ratio

Due to the nature of high balances on student loans, it is important to note how these loans count against your debt ratio regardless of the status of the loan. Your income must show that you are not over 43 percent in debt for all of the loans you carry. Many times, paying off credit cards will reduce your debt ratio enough to carry the student loan payment and balance when checked against your income.

Reinstatement Criteria

If you have fallen behind on student loan payments and are unable to qualify for an FHA loan because of this you might be able to work with the lender to have your loan reinstated as positive by paying off 5 to 10 percent of your balance outright. Once the loan is reported as current your ability to qualify for an FHA loan will be enhanced.

Considerations

When applying for an FHA loan it is wise to check your own credit report and understand how to read it before you speak to a lender. Should your student loan information be questionable in any way, you will need to contact the lender directly to see if you can resolve any questions. This will increase your chances of qualifying for an FHA loan in the beginning.

Resources

• Free Credit Report