New FHA student loan changes coming: FHA announced some positive changes coming to the way student loan debt is calculated by lenders and banks. The old FHA loan policy for student loan debt required mortgage companies to calculate a monthly payment for deferred Student Loans using 2 percent of the outstanding balance, and include the payment in the Borrowers Debt-to-Income ratio for qualification purposes. New rules going into effect June 30, 2016, will reduce this to only 1% of the outstanding student loan balance! This guidance is effective for all case numbers assigned on or after June 30, 2016.
The Biden administration is easing federal mortgage lending rules to give student loan borrowers a better shot at being approved for a home mortgage.
The Federal Housing Administration (FHA) announced changes to its student loan calculations that should make it easier for student loan borrowers to obtain mortgage approval. The policy change centers on the removal of the current requirement that FHA mortgage lenders calculate a borrower’s monthly student loan payment as 1% of their outstanding student loan balance for loans that are not fully amortizing or are not in repayment. This includes borrowers who are in an approved deferment or forbearance, or who are only required to make relatively small payments under an income-based repayment plan.
The new FHA policy will allow mortgage lenders to use a borrower’s actual monthly student loan payment amount, even if it is below the traditional amount of 1% of the total balance. And if a student loan borrower’s calculated payment is $0 (which is possible under an income-driven repayment plan), the mortgage lender will automatically apply 0.5% of the outstanding student loan balance as an assumed payment, rather than 1%.
“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,” said Housing and Urban Development Secretary Marcia L. Fudge in a statement. “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.”
