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HUD Working to Make FHA Loans More Accessible to Those with Student Loan Debt

The Federal Housing Administration (FHA) on Friday announced updates to its student loan monthly payment calculations to take steps to remove barriers and provide more access to affordable single family FHA-insured mortgage financing for creditworthy individuals with student loan debt.

The agency said the barriers have a disproportionate impact on people of color.

The updated policy “more closely aligns FHA student loan debt calculation policies with other housing agencies, helping to streamline and simplify originations for borrowers with student loan debt obligations.”

“…Too often in our history, the march toward freedom has been a long, halting, and uneven journey,” Housing and Urban Development Secretary Marcia L. Fudge said in a news release. “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 published on Thursday evening for FHA Single Family Title II forward mortgages remove 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 home buyers 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. Over 80 percent of FHA-insured mortgages are for first-time homebuyers on average each year. FHA estimates that more than 45 percent of these borrowers also have student loan debt, with much of this debt impacting people of color.

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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