FHA Acts to Remove Homeownership Barriers for Those With Student Loan Debt

At NAHB’s urging, the Federal Housing Administration (FHA) today 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.

This update is the result of a coalition letter NAHB signed onto last year with the Mortgage Bankers Association in which we requested that FHA amend its policy regarding student loan debt calculation to allow for the use of the actual monthly student loan payment made by the borrower.

Previously, FHA presumed a monthly payment of 1% of the outstanding student loan balance, which is almost always larger than the actual payment being made by the potential borrower. NAHB contended that the previous policy disqualified creditworthy borrowers due to inflated debt-to-income ratios resulting in limited financing options or disqualifying borrowers entirely.

The new policy more closely aligns FHA student loan debt calculation policies with other housing agencies by basing the monthly payment on the actual student loan payment, which is often lower, and helps home buyers with student debt to meet minimum eligibility requirements for an FHA-insured mortgage.

Specifically, the new policy bases the monthly payment on the amount reported on the credit report or the actual documented payment, when the payment amount is above zero; or 0.5% of the outstanding loan balance, when the monthly payment reported on the borrower’s credit report is zero.

This change in policy results in a more accurate student loan payment calculation and will make it easier for home buyers with student debt to qualify for a federally insured mortgage.