March 31, 2016
Student Loans and their Impact in the Total Debt Ratio
Recent updates to the 3555 Handbook intended to simplify guidance
for the delivery of the guaranteed loan program have caused some misperception in
regards to total debt ratio calculations, specifically in the subject of
student loans. The Agency is working on
revisions to Chapter 11: Ratio Analysis; however, we want to further clarify
the subject at this time.
Total
debt includes monthly housing expenses plus any other credit obligations
incurred by the applicant. Student loan
payments must be included in the calculation of the total debt-to-income ratio
and captured under liabilities on the application. Student loan payments should be treated as
described below:
Fixed payment
loans: A fixed payment may be used in the debt ratio when the
lender retains documentation to verify the payment is fixed, the interest rate
is fixed, and the repayment term is fixed. There must be no future
adjustments to the terms of the student loan payments.
Non-Fixed payment
loans: Payments for deferred loans, Income Based Repayment (IBR),
Graduated, Adjustable, and other types of repayment agreements which are not
fixed cannot be used in the total debt ratio calculation. One percent of
the loan balance reflected on the credit report must be used as the monthly
payment. No additional documentation is required.
This clarification is effective
immediately. Questions regarding this
announcement may be directed to the National Office Division at (202) 720-1452.
Thank you for your support of the Single Family
Housing Guaranteed Loan Program!
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