Tag: debt ratio

  • FHA changes may hurt your first-time homebuyers

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The new FHA handbook is now in effect, and I think you’re going to find the new loan guidelines reduce your pool of potential homebuyers.

    That said, probably the biggest change is a mostly positive one. The old handbook allowed for a lot of underwriter discretion. With FHA suing lenders to buy back defaulted loans, many lenders had instructed their underwriters to adopt conservative interpretations of the guidelines. In contrast, in the new handbook the guidelines are more black and white. Very little is left to underwriter discretion.

    Unfortunately, some of those black and white rules are even more conservative than what underwriters were applying before the new handbook and are likely to prevent some marginal homebuyers from qualifying.

    A change likely to impact many first-time homebuyers concerns student loans. With the previous rules, FHA would allow us to ignore student loans that were deferred greater than 12 months. The new rules eliminate this exemption. All student loans must be considered in a borrower’s debt ratio.

    Student loan servicers often don’t report a monthly payment for a deferred loan, and the new rules say we must use 2% of the loan balance if the servicer won’t report a payment. Fortunately, loan servicers typically will provide a payment based on the loan’s current balance if the borrower asks, and this payment typically is closer to 1%.

    The change makes FHA more consistent with conventional loan programs. However, Fannie Mae allows us to use 1% of the loan balance if the servicer won’t report a monthly payment.

    FHA still provides one advantage over conventional loans. It allows the use of the actual payment for income-based student loan repayment plans. These plans often have payments that are less than 1% of the loan balance.

    Next week we’ll look at several other significant changes.

  • Qualifying for mortgage easier with new student loan guidelines

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    Given all the media coverage about student loan debt keeping millennials out of the home purchase market, I thought it would be good to review some updated loan guidelines from Fannie Mae and USDA concerning this type of debt.

    One important point to remember is that both loan programs treat deferred student loans the same as loans in active repayment, meaning we have to include the loans in our debt calculations.

    Also, the guidelines recognize that income-based and graduated repayment plans, which have become popular, may not provide an accurate estimate of the loan’s impact on the borrower’s finances because the payment may rise. As a result, the guidelines require that we use a fixed percentage of the loan balance in our debt calculations.

    On a very positive note, the updated guidelines cut that fixed percentage from 2% to 1% of the loan balance. This is a big deal because it reduces the impact of student loan debt by 50%. Further, if the actual payment is less than the 1% calculation, the guidelines state that we can use that payment, but only if it fully amortizes the loan. If the actual payment is greater than 1%, we must use the actual payment.

    While USDA already has implemented the new guidelines, the changes won’t apply to Fannie loans until 4/1.

  • How can residual income help your homebuyer?

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

  • Is student loan debt stopping your homebuyers?

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

  • FHA’s new manual underwriting guidelines

    Click here for a link to the FHA mortgagee letter.

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

  • FHA, USDA loan approvals get a bit harder

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.