Are Student Loans Holding You Back from Homeownership? Help May Have Arrived.
As of June 2021, the Federal Housing Administration (FHA), unit of the Department of Housing and Urban Development that provides insurance on mortgages as little as 3.5% down, has changed the way student loan payments are counted when determining eligibility for federally insured mortgages.
“Homeownership is the cornerstone of the American Dream and the best way to build generational wealth,” said Housing and Urban Development Secretary Marcia L. Fudge. “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.”
As we’ve noted in several posts on the Ross Mortgage blog, student loans can impact several elements that are part of the homebuying process, such as credit scores and the mortgage application itself.
What was the previous standard?
Previously, lenders were required to count 1% of the outstanding student loan balance toward monthly debt payments in those situations. That amount has been cut in half, or even more in some cases.
The new updates effectively reduce institutional obstacles to homeownership and provide greater access to affordable FHA-insured mortgage financing for creditworthy individuals with student loan debt. The updated policy also better aligns FHA student loan debt calculation policies with other housing agencies, which helps streamline and simplify student loan debt obligations.
Who do the changes help?
The change is particularly helpful for student loan borrowers:
- Who are on an income-based repayment plan;
- Whose loans are in an approved deferment or forbearance; or
- Whose loans are not fully amortizing.
What can Ross Mortgage do?
If you or someone you know was previously unable to finance a home because your student debt load was deemed too high, these changes may shift the outcome of their application.
The Ross Mortgage team are experts in helping borrowers navigate the complicated mortgage processes, and can ensure you understand how this exciting announcement from FHA will impact your dreams of homeownership.