Smart Borrower Blog

Deferred Student Loans May Keep Buyers from Getting Mortgages

Jun 15th, 2016 @ 12:01 PM by Amber Nelson

New federal regulations are likely to stop many potential American home buyers from qualifying for an FHA mortgage. Lenders will now have to take into account any student loans in deferment, a situation which many keep many younger borrowers from making a home purchase.

The Federal Housing Administration (FHA) has included a new rule in its Single Family Housing Policy Handbook  that requires lenders to include all student loan debt in the borrower debt-to-income calculation. When dealing with deferred student debt, lenders can use either the borrower’s projected student loan payment or if that information is unavailable, 2 percent of the student loan debt. Once that additional debt load is added into the mix, many borrowers have too much debt to qualify.

Previously, “if people were in their deferral period, we didn’t treat that as debt. Now we do because debt is debt, deferred or otherwise,” says Brian Sullivan, a spokesman for the U.S. Department of Housing and Urban Development, the FHA’s parent agency.

The new regulation will affect mostly those with federal student loans, as private loans rarely include deferment periods. Federal loans typically allow for deferral while borrowers are still in school or a 6-month deferral window after graduation. Borrowers can check with their loan servicer for details on their projected monthly payments.

Younger consumers are already much less likely to buy a home these days, according to a study by the National Association of Realtors and SALT, a consumer literacy program provided by nonprofit American Student Assistance. Out of all non-homeowners with student debt, 71 percent said the burden of those student loan repayments was an obstacle to them buying a home, with a majority saying it would likely be at least five years before their student loan obligations would lessen enough to consider a home purchase. The new FHA regulations will likely keep even more potential buyers from entering the mortgage market.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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