By: Tarra Jackson, financial expert and keynote speaker (@msmadamemoney)

Most people that know me know that I love movies! I especially love the romantic comedy, “While You Were Sleeping.” However, there was nothing romantic or funny about the Federal Housing Administration (FHA) new rules that may make it more difficult for first-time and repeat home buyers to qualify for a mortgage.

While you were sleeping …

On September 15, FHA’s new rule became effective to include deferred student loans in the debt to income (DTI) ratio that lenders use to determine whether a borrower can repay a mortgage.

Prior to September 15, 2015, FHA allowed loan officers to exclude student loans in deferment for at least 12 months from the total debt when calculating the debt-to-income (DTI) ratio.

Wait! … What?

Yup! That’s right! Under the new FHA rule, loan officers are now required to use 2 percent of the outstanding deferred student loan balance in calculating the monthly DTI. For example, if you have a deferred student debt balance of $20,000, FHA will now include a 2 percent ($400 a month) repayment obligation when calculating your DTI.

Why … Why … WHY?!?

Research by the Federal Reserve Bank of New York revealed that at the end of 2014, 43 million people, most of them younger than 40, had an estimated $1.2 trillion in outstanding student-loan debt, with an average balance close to $27,000.  Alarmingly, 17 percent of borrowers are delinquent or in default, and although 20 percent are current on payments, they have experienced delinquencies in the past.

Brian Sullivan, an FHA spokesman, told Ken Harney of the Washington Post, “Deferred student debt is debt all the same and really must be counted when determining a borrower’s ability to sustain both student debt payments and a mortgage over the long haul.” He added that the agency’s primary goal is to put first-time home buyers “on a path of sustainable homeownership rather than being placed into a financial situation they can no longer afford once their student debt deferment expires.”

What this means to you …

This rule change may “make FHA loans, which traditionally have been the go-to financing source for young, first-time and moderate-income purchasers, less attractive” say mortgage lenders and analyst.

The 2 percent calculation is more than the amount that Fannie Mae and Freddie Mac use, which is 1 percent. If your student loan is not deferred, the actual monthly payment is included with your total debt. This may affect the amount of mortgage you qualify for or whether or not you qualify for a mortgage at all.


Read more over at her blog at