FHA Changes Policies on Student Debt Obligations

FHA will consider potential homeowners’ student debt obligations based on what they actually pay monthly, which will assist the approximately 50 percent of federal student loan borrowers in income driven repayment plans with securing an FHA loan. The new guidelines modify FHA’s past practice of calculating potential homeowners’ student loan obligations as equal to one percent of their outstanding balance, which unnecessarily disqualified many potential homeowners with student debt from participating in FHA’s insurance program.

This is a true GAME CHANGER as student loans have prevented a lot of millennial buyers ( who make up the majority of new buyers) from getting qualified to purchase a home.  This guidance is effective August 16, 2021.

The calculation is now the same as it is on Conventional Freddie Mac loans, but what makes this different, is that qualifying for FHA is much easier in terms of credit scores, reserves and down payment.  This can open up the door for so many buyers that don’t qualify for conventional, and couldn’t go FHA because of student loans.

• Guidance is effective for case numbers assigned on or after August 16th
• This guidance is brand new so we have no feedback from investors at this point but are confident that they will follow suit
• For student loans that have a payment reported on the credit report that is GREATER THAN ZERO—you may use THAT payment in qualifying
• For student loans that have a payment reporting on the credit report of ZERO—you may use a payment equal to  .5% of the loan balance to qualify—this is a dramatic improvement over the currently required 1% of the loan balance
• If a payment amount used to qualify is LESS THAN the monthly payment reported on the borrower’s credit report, the lender must obtain written documentation of the actual monthly payment, payment status, and evidence of the outstanding balance and terms from the student loan creditor or servicer.