FHA Loosens Lending for Buyers with Student Loan Debt

By Kurt Real Estate Jun 23, 2021

The updated policy more closely aligns FHA debt calculation policies with other housing agencies (Fannie Mae/Freddie Mac and VA) to help to ease guidelines for borrowers with student loan debt obligations.

The policy updates published on June 17 removes the current requirement that lenders calculate a borrower’s student loan monthly payment of one percent (1%) of the outstanding student loan balance for student loans that are not fully amortizing 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. This announcement enhances FHA’s ability to serve one of its core demographics—first-time homebuyers.

For Example:

If Ms. Jones has $50k in student loan debt, the payment on her credit report is typically $250. Under the previous FHA guideline, their calculations would have placed the debt payment at $500 per month. That may not sound like much; however, Ms. Jones may also be married and her husband had the same amount of debt; then it’s $500 a month.

Over 80% of FHA-insured mortgages are for first-time homebuyers on average each year. FHA estimates that more than 45% of these borrowers also have student loan debt.

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

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