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FHA Makes It Easier for Student-Loan Buyers to Get a Mortgage

People with student-loan debt should find it easier to buy a home with an FHA loan. The agency updated its calculations to “remove barriers and provide more access.”

WASHINGTON – The Federal Housing Administration (FHA) announced updates to its student loan monthly payment calculations. The agency said it removed barriers and provided more access to affordable single-family FHA-insured mortgage financing for creditworthy individuals with student loan debt. FHA says its student-loan lending rules has a disproportionate impact on people of color.

“As our country comes together to remember Juneteenth and acknowledge National Homeownership Month, we are reminded of a basic truth: that, too often in our history, the march toward freedom has been a long, halting and uneven journey,” says Housing and Urban Development (HUD) Secretary Marcia L. Fudge. “Homeownership is the cornerstone of the American Dream and the best way to build generational wealth. I am proud that FHA is taking action to make it easier for borrowers with student loan debt to qualify for a federally insured mortgage. This new policy will make a big difference for individuals throughout our nation and is another step in our mandate to promote equity and opportunity for homeownership.”

The policy updates FHA Single Family Title II mortgages. It removes the current requirement that lenders calculate a borrower’s student loan monthly payment of one percent of the outstanding student loan balance for student loans that are not fully amortizing or are not in repayment. The new policy bases the monthly payment on the actual student loan payment, which is often lower, and helps homebuyers who, with student debt, meet minimum eligibility requirements for an FHA-insured mortgage.

In announcing the change, FHA says it enhances FHA’s ability to serve one of its core demographics – first-time homebuyers. Over 80% of FHA-insured mortgages are for first-time homebuyers on average each year, and FHA estimates that more than 45% of these borrowers also have student loan debt, with much of this debt impacting people of color.

“These changes remove unnecessary constraints for otherwise creditworthy borrowers and reinforce FHA’s ability to serve those who need us most, including first-time homebuyers and underserved communities,” says Principal Deputy Assistant Secretary for the Federal Housing Administration Lopa Kolluri.

Lenders may implement the changes immediately but must implement the changes for FHA Case Numbers assigned on or after Aug. 16, 2021.

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