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FHA Reduces Obstacles to Homeownership for Student Debt Holders

The Federal Housing Administration (FHA) has 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 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.

“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,” said U.S. Department of Housing & 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 apply to FHA Single Family Title II forward mortgages and remove the current requirement that lenders calculate a borrower’s student loan monthly payment of 1% 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.

“Today, as we prepare to celebrate Juneteenth and recognize June as Homeownership Awareness Month, it is critical that we reflect on all of the ways that racial discrimination is woven into our society, especially in our housing system,” said U.S. Senator Sherrod Brown, Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs. “Too many generations of Black families are locked out of the opportunity to get an affordable mortgage, own their own home, and build wealth to pass on to their children and grandchildren. I commend HUD and Secretary Fudge for taking this first step to address inequities in our housing system and look forward to continuing to work together to increase access to homeownership and address disparities.”

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

Principal Deputy Assistant Secretary for the Federal Housing Administration Lopa Kolluri said, “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."

Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit, CMB, said, "MBA applauds HUD Secretary Marcia Fudge for this change, which will help creditworthy low- and moderate-income and first-time buyers qualify for an FHA loan. It will also allow lenders to underwrite an FHA mortgage using more accurate estimates of a borrower's actual monthly student debt payments. FHA's previous rules overestimated student loan payments, denying access to FHA mortgages for many creditworthy borrowers. MBA looks forward to continuing to work with Secretary Fudge, the leadership at HUD, and other stakeholders, including members of Congress such as Congressman Gregory Meeks and House Financial Services Chairwoman Maxine Waters, to help FHA borrowers recognize the American dream of owning a home."

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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