If You Are Buying With an FHA Loan and Have a Debt Where Payments Haven't Started Yet, Read This
If you are buying a home with an FHA loan and you have a debt where the payments haven't started yet, this one is for you. A situation that comes up often is a buyer I will call Margaret, a fictional FHA home buyer near Aiken, SC. She is an illustrative archetype, not a real client, but her assumption is a very real one.
Margaret's Assumption
Margaret has an installment debt that is deferred, or in forbearance. No bill has come due and no payment has started. So she figures it cannot count against her when a lender looks at her monthly obligations. It sounds logical. She starts house hunting believing her qualifying picture is cleaner than it actually is.
What the FHA Guideline Says
Here is the passage that matters, word for word:
"Deferred Obligations (excluding Student Loans) refer to liabilities that have been incurred but where payment is deferred or has not yet commenced, including accounts in forbearance. The Mortgagee must include deferred obligations in the Borrower's liabilities. The Mortgagee must use the actual monthly payment to be paid on a deferred liability, whenever available. If the actual monthly payment is not available for installment debt, the Mortgagee must utilize the terms of the debt or 5 percent of the outstanding balance to establish the monthly payment."
Reading It Line by Line
First, the scope. This covers debts that have been incurred but where payment is deferred or has not yet commenced, and it names accounts in forbearance specifically. Student loans are carved out of this passage and follow separate guidance, so this article is about other debts.
Second, the word "must." The guideline does not say the lender may include a deferred obligation. It says the Mortgagee must include it in the borrower's liabilities. Deferred does not mean ignored.
Third, the order. The lender must use the actual monthly payment to be paid on the deferred liability, whenever available. That is the first choice.
Fourth, the fallback. If the actual monthly payment is not available for an installment debt, the lender must utilize the terms of the debt or 5 percent of the outstanding balance to establish the monthly payment.
Why This Matters for Margaret
If Margaret does not know this, the debt she thought was invisible can appear later as a monthly obligation in her qualifying. That can change the picture of what she is able to qualify for, and it tends to show up after she has already fallen in love with a house. Finding out early gives her room to plan. Finding out late gives her a surprise.
What Margaret Does Today
She does not guess. She asks her loan officer this question, word for word:
"I have a debt that is deferred or in forbearance. What monthly payment are you using for it in my qualifying, and is that the actual payment?"
Then she requests a written creditor statement showing the actual monthly payment. If a statement is not available, she asks in writing whether the lender is using the terms of the debt or 5 percent of the outstanding balance. A written answer removes the guesswork and gives her something to compare against her own budget.
She asks before she makes an offer, not after. That timing is the whole advantage.
How I Can Help
I am Jason Sharon, a licensed mortgage broker, and my brand promise is simple: I find the path. If you have a debt in deferment or forbearance and you are thinking about an FHA loan, call me at 843-LOW-RATE and I will walk you through how it may be counted before you start shopping.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: If You Are Buying With an FHA Loan and Have a Debt Where Payments Haven't Started Yet, Read This
