In my role as a Loan Officer who specializes in renovation loans I speak to many potential buyers. These days it is not uncommon for a first time buyer to have student loan payments that are actively in repayment or will one day be in repayment after any deferments expire. What has recently changed is that any FHA insured loan now requires all student loan minimum monthly payments to be subtracted from monthly income even if in deferment. This is true for conventional loans as well. In the past the FHA rule was that if documentation exists showing the student loan payment will remain deferred for 12 months or more then the payment was omitted. Meaning a lender did not have to count it as a future monthly payment when qualifying a borrower for an FHA insured mortgage.
Buyers with student loan debt could potentially run into a road block in the process of determining the mortgage amount or getting approved for a mortgage in general with the new FHA and Conventional rules regarding deferred student loan repayment. This situation may even keep some buyers on the sidelines for an extended period.
A possible solution in this situation may just be purchasing a lower cost property needing a remodel. By that I mean a home that is old, outdated, damaged or even a foreclosure property. Often these properties may be sold at a discount over a newly built home or a newly remodeled home. This may also be true of a home located in the buyers preferred area.
I’m writing today to make a suggestion to any buyers who find themselves in this situation with student loan payments limiting or adversely affecting their ability to buy a home and be approved for a mortgage. I’m suggesting the idea of looking for a home in need of a rehab that may be able to be purchased for a lower price. The idea being that in purchasing a lower priced home with a renovation loan the buyer may be able to be approved to borrow additional funds in the same loan to update the home. With a renovation loan, you will be able to go forward knowing that the future student loan payments have already been considered and all while knowing that student loan payments will not now or in the future adversely affect the ability to pay the monthly house payment. This will allow you the potential to buy a property in the preferred location and realize an increase in value a renovation may provide. The two loans available are called FHA 203K and conventional HomeStyle.
Here in Chicago I have seen both single family homes and 2 unit buildings (called two flats) that are old or foreclosures be an excellent source of a home to purchase and rehab. A 2 unit provides an income that can be used to help a buyer qualify for a mortgage. A 2 unit also provides a back yard and garage usually just like a single family home.
If you find yourself limited or even shut out of the housing market because of the new rules on fully counting deferred student loan payments please consider looking for a lower priced home to rehab or even a 2 unit property to remodel.
I hope this post has been helpful and encouraging to those that may have thought a Renovation project was too complex or beyond their ability to manage. My intent is always to inform, educate, and generate discussion. Please call me or email me directly or visit my website for more information on renovation loans. I welcome your comments and questions!