Housing News

FHA Changes Student Loan Rules to Make It Easier to Qualify

The Federal Housing Administration announced recently that it is changing some of its rules surrounding student loans to "make it easier for borrowers with student loan debt to qualify for a federally insured mortgage."

According to the FHA, the rule changes relate to the way student loan debt payments are calculated and used when determining whether borrowers are eligible for FHA mortgage insurance.

In a statement, the FHA said that it is making the changes to "remove barriers and provide more access to affordable single-family FHA-insured mortgage financing for creditworthy individuals with student loan debt, which has a disproportionate impact on people of color."

According to the FHA, the changes "closely align" its student loan debt calculation policies with the other housing agencies, which should "streamline and simplify originations for borrowers with student loan debt obligations."

Per the FHA, its previous policy required lenders to 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 HUD states is "often lower." According to the FHA, this change should help those with student debt meet the eligibility requirements for an FHA mortgage.

"Homeownership is the cornerstone of the American Dream and the best way to build generational wealth," Department of Housing and Urban Development Secretary Marcia Fudge said in a statement.

"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," Fudge added. "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."

According to the FHA, the rule change allows the agency to better serve first-time homebuyers, many of whom have student loan debt. In its statement, the FHA states that more than 80% of FHA mortgages are for first-time homebuyers each year. Of those, FHA estimates that more than 45% of those borrowers have student debt.

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

According to the FHA, lenders may implement the changes immediately but must have the changes in place no later than Aug. 16, 2021.