FHA just issued Mortgagee Letter 2021-13 revising the FHA policy on student loans. Prior to Mortgagee Letter 2021-13, FHA required the monthly payments on student loans which were not in repayment or showed a "0" monthly payment on credit reports, to be established at 1% of the outstanding balance. This policy has had a huge negative impact on the ability of borrowers with students to qualify for a mortgage. 1% of the outstanding balance is far more than student loan monthly payments which are income based, and even larger than student loan monthly payments which are not income base.
The new FHA policy for establishing the monthly payment for student loans have been revised as follows:
If the payment is less than the monthly payment reported on the Borrower’s credit report, must obtain written documentation of the actual monthly payment, payment status and evidence of the outstanding balance and terms of the loan.
The payment amount reported on the credit report or the actual documented payment when the payment amount is above zero; or
0.5% of the outstanding loan balance, when the monthly payment reported on the borrower’s credit report is zero.
The full payment may be excluded when written documentation is provided from the student loan servicer indicates the loan balance has been forgiven, canceled, discharged, or paid in full.
This change reducing calculation of the monthly payment on student loans from 1% to .5% will have a major impact on the ability of borrowers with student loans to qualify for a mortgage they were not able to qualifying for before.
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