Profile picture for mr.fitzy

FHA First time home buyer with student loans - can I purchase?

I'm a recent college grad. I am really motivated to take advantage of a down market, the $8000 first time home buyers credit, and ultimately have a potentially profitable 5 year investment.

However, the caveat is I have sizeable student loans in repayment. If I understand FHA requirements correctly, this is my scenario:

Monthly gross income: $3750
Monthly debts: $900 ($650 in private student loans, $250 federal)
Excellent credit

So my current monthly DTI ratio is about 24%... which leaves only 19% of the maximum 43% left? So I can only afford a mortgage less than $712/mo? Anyone in the Seattle area knows that leaves very few options, even looking at condos.

I don't want to (morbidly) think that I can't afford a home because I went to college... In fact, as a catch-22, I wanted to use the (hopeful) profit in reselling to cut down my student loans...

What should I do? Do I have options? 
  • January 27 2010 - Seattle
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Answers (14)

Your numbers are accurate.  Student loans do count in your debt ratio. FHA does allow a non-occupied cosigner (.i.e. parent or near relative).  We combine the income and assets of both parties to qualify you.  This typically allows you to qualify for much more.....you have to feel comfortable with the payment because although you will have a cosigner you are ultimately responsible for the monthly payment.  Many of my first time home buyers use this option.  Let me know if I can help! Curt
  • January 27 2010
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Profile picture for daveskow

your math is right ...a $712 pmt  translates to approx $75K FHA loan amt ....( unlikely to locate anything in king county at this level)

idea 1- any chance to have the student loans  recalibrated to a lower level?

Idea 2 - find a co borrower  or can a parent possibly co sign ( as FHA allows this )

fyi- if you do go the condo route be aware that all lenders are tightening up on the  condo requirements  ( most lenders have approved  condo lists  now whereas before it was easier to get a condo loan )

  • January 27 2010
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FHA is a great program for first time home buyers.  I have seen higher DTI's get approved with compensating factors, such as good credit, cash reserves etc.  So it is possible to qualify for a higher payment and potentially find a home in your price range.  Have you considered south King County?  I'd be glad to run a full preapproval for you to see exactly what you're qualified purchase price may be. thanks. Larry Burr
  • January 27 2010
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Hi Mr. Fitzy. FHA  allows up to a 49% debt to income ratio,...not 43%. The 43% you speak of may be that particular Lenders guideline.

As for the co-borrower situation, just realize you have to make the payment each month. So having a co-signer to qualify for a loan that is too big for you to afford spells trouble. That is if your co-borrowers is not giving you the $xxx.00/mo to help you cover what you can't afford.

Your student loans are really not that big. Most people have at least $1000/mo in recurring debt between cars, cards, etc..

Hope this helps

  • January 27 2010
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Profile picture for bethghomes

If you end up getting qualified to purchase something, be very careful before entering into an agreement on a condo.  As the lenders have mentioned above, the rules have changed a lot.  With a condo you are getting into a home owner's association and you want to make sure you have all the answers to the important questions BEFORE you waste a lot of time on a condo that the lenders won't fund.  I'd love to help you out if you need & have many happy home buyer references.  (First timers & beyond).

Good luck & college was worth it~ we all had those loans to pay, but it'll pay off for sure.

Beth G.

  • January 27 2010
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There's not much more to add so I'll be brief - I had not heard of the 49% DTI limit on FHA. I think you can go higher with an automated approval.  Not saying you should, as 49% of gross income doesn't leave much left over for groceries.

One item no one has commented upon - I wouldn't bank on a 5 year profit.  A lot of people are sorry they had that motivating factor 5 years ago and I'm not very confident 5 years from now will see a ton of improvement. Don't forget to factor in the typical 6-10% selling costs in 5 years and it might be close to a break even.

I think buying is an excellent idea right now - I just don't like to see people assuming it will be a money maker.
  • January 27 2010
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Having student loans alone does not preclude you from qualifying for a loan.  The problem as you have already figured out is the monthly payment.  Your best bet is to talk to a bank and find out the real story for sure. 

Just as an aside, did you see that Obama has hopes of signing into law that student loans will be forgiven in ten years if you are in public service and in 20 years if not?  Just something to think about for the long term.

Overall it sounds to me like have a great income.  You may want to consider renting for a year or two and paying off as much of the loans as you can.  It improves your credit and will allow you to pay less per month. 

When I graduated school I had the same situation.  Here is what I did.  I paid the minimum on the loans and then when I had saved up enough to pay off one of the loans (usually the smallest) I did so.   Then it lowered my monthly.  If you can just do this a few times your monthly starts to drop and gives you more money to save toward the next loan.  In a year or two the monthly goes down, you get a raise or two and viola, now you qualify for a bigger home. 

Just a thought.  Best of luck,

Rob
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  • January 28 2010
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wrong , ur schooling qualifies as expierence..........dont worry about what you can qualify for find a house you love..... itsa boorowers market on that income 3 yrs ago u could buy 340k tady enjoy 140 and let it appreciate
  • January 29 2010
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Profile picture for HIJgreen
Last year, I was currently in a similar situation.  I had gotten a pre-qualifying letter for a loan up to $70,000.  I had found my dream home, placed a bid (and won) on a HUD home with an FHA loan.  When I actually went to a bank to get the loan approved, they realized that the place where I had been pre-qualified for a loan did not take into consideration my student loans since I had been in the deferrment period. 
By the time I was ready to get the loan, I had just paid my first payment on the student loans.  Every place I went for a loan, I was told that I needed a co-signer and there was nothing else they could do because my DTI was too high.  My boyfriend (now my husband) had an income but it could not be taken into consideration because he had no credit. 
Everyone believed that having a co-signer would solve all our problems, but our parents would not sign for us, which put us in a bigger bind. We ended up having to give up the house and rent.
What we should have done in the first place was go directly to the place where we wanted to borrow for the loan.  They will sit with you and talk about your options.  They're there to help you.  They want you to get a loan probably even more so than you want it.
  • January 30 2010
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Profile picture for Justin Kennedy
Higreen, response to the below reply, you were set up to fail by a poor loan officer; any loan officer worth thier salt will determine or have you determine when your students loan deferrement experation date is to occur. usally it is on the credit report; FHA requires students loan to be deferred 12 months from date of closing. which i highly doubt your hud home action took in excess of 12 months. this is something that should have been address in the loan prequal phaze.
  • January 31 2010
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Profile picture for jacke1425
What are other options if the school loans are ferderal and do not allow co-signers?
  • February 08 2010
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Profile picture for jacke1425
i am in the same boat and want to cosign my loans with my parents. The problem is that they are federal loans, and you can not have a cosigner with a federal loan. Any thoughts on how to not count this in my DTI?
  • February 08 2010
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They are debts. They are debts owed to the Federal Gov't. They will not just go away. Therefore, they will count against your mortgage DTI ratio until they are paid off. Just like they should. You will have to achieve an income high enough to cover them, and your potential mortgage payment. It would have been nice of the financial aid person at your school to point all of this out, but that would diminish their predatory success.
  • February 08 2010
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Profile picture for blue screen exile
"really motivated to take advantage of a down market" -

It appears that there may be an error in assumptions here.  Down compared to what?  Compared to an artificial market bubble?

As far as I can tell, the bubble is still deflating, and any "purchase" is still in an "up" market, especially with the Federal government propping up prices with $8k incentive "give aways".

"Profit reselling"? -

It appears that the transaction costs have not been factored in, nor the comparison to present rents and upkeep.

Why would you want to buy something fairly permanent with a 30 year or so "commitment" if you don't plan on staying?  The break-even point in a normal market is about 5 to 7 years.  In a falling market like present, the break-even is a lot longer; maybe 10 to 12 years, and that doesn't even take into consideration the intentional devaluation of the dollar.

What is the degree in?
  • February 08 2010
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