HUD: FHA Takes Steps to Remove Barriers to Homeownership for Those with Student Loan Debt

Updates to Single Family student loan monthly payment calculation expand access to FHA-insured mortgage financing for creditworthy individuals, particularly in communities of color

The Federal Housing Administration (FHA) on Friday 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, which has a disproportionate impact on people of color. 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 Housing and Urban Development 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 published on Thursday evening for FHA Single Family Title II forward mortgages remove the current requirement that lenders calculate a borrower’s student loan monthly payment of one percent 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 home buyers who, with student debt, meet minimum eligibility requirements for an FHA-insured mortgage.

This announcement enhances FHA’s ability to serve one of its core demographics—first-time homebuyers. Over 80 percent of FHA-insured mortgages are for first-time homebuyers on average each year. FHA estimates that more than 45 percent of these borrowers also have student loan debt, with much of this debt impacting people of color.

“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.

“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. 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,” said U.S. Senator Sherrod Brown, Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs. “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.

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