First-time home buyers might face greater debt scrutiny

In an attempt to reduce risks for the mortgage industry -- especially with relation to loans backed by the Federal Housing Administration -- the FHA has created some clarifications to its handbook for single-family borrowers. The handbook, which was updated as of September 2015, helps lenders understand what debt can and can't be considered when calculating debt-to-income ratios.

Previously, lenders did not have to include deferred debt in the calculation, which was good news for anyone with a deferred student loan. Because so many of these loans were deferred almost automatically, younger individuals were qualifying for FHA loans on properties despite what could be considered crippling student loan debt on the horizon.

The initial belief was that, as young professionals sought work and moved up the ladder, they would be able to afford both the mortgage and the student loan payments. In reality, however, many young professionals became enmeshed in a debt situation that pitted high mortgage and student loan payments against a salary that was often lower than expected.

The new changes might make it more difficult for those with large student loans to qualify for a mortgage, making it important for students and younger people to plan for debt carefully and seek debt relief when necessary. Understanding how debt relief, including deferments, might impact your future credit and ability to borrow is important.

While student loans can't be included in some relief activities, such as bankruptcy, you can use debt relief to free up income to pay down student loans faster. Without large loans hovering over your financial status, you are often freer to seek mortgages and other arrangements in the future.

Source: National Mortgage News, "FHA Closes Loophole for Student Debt in Revamped Lender Handbook," Bonnie Sinnock, Nov. 10, 2015

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