FHA Issues a New Policy on Student Debt

Posted July 26, 2021 in Real Estate Trends

There are new opportunities for home buyers who have student debt.

Previous to a push by the Biden administration last week to relax how student-loans are calculated into housing loans backed by the Federal Housing Administration (FHA), applicants had a difficult time qualifying for FHA backed loans. The new home-buying assistance comes  through the Department of Housing and Urban Development that provides the insurance on mortgages backed by the FHA for first-time and lower income home buyers.

The move to help home buyers with student debt coincides with greater student debt amounts noted on  applications over the last two decades. The effort to help also coincides with finding more ways for first time home applicants to get better assistance with down-payments for the houses they are seeking to buy. HUD Secretary Marcia Fudge issued a statement to lenders last Thursday stating, “The 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 methods that were previously incorporated into how student loans impacted an application for a mortgage were basically calculated by making assumptions that borrowers would make payments equal to 1 % of any unpaid student-loan balances. The new calculations utilize the actual payment amounts that applicants make. The 1 % method utilized before the new policy was proposed often eliminated the opportunities for applicants to qualify for a loan even if there was adequate income documented on the application. Many applicants have reduced student loan payments that they have negotiated and have not been served fairly by the standard 1 % calculations that were being processed by the FHA.

Stories within the mortgage industry have circulated about some first-time homebuyers not taking advantage of down-payment assistance programs so that they could at least qualify for a conventional home loan. The administration has not released data on how many FHA borrowers will be helped by these changes just happening last week.

Within the home lending industry, the preapproval process is as important as ever as the industry attempts to help more people qualify for home loans. The National Association of Realtors released data from April that half of the homes purchased with mortgages had buyers who had at least a 20 % down payment.

The greatest opportunity it seems according to industry research is for those who work with mortgage brokers or nonbank lenders. Lenders such as Finance of America of whom I am associated with issued 68.1 % of all mortgages produced in 2020. According to The Mortgage Bankers Association, the industry as a whole made a record breaking number of $3.83 trillion in home loans in 2020 overall.

Many banks have pulled back in the mortgage processes. The efforts of mortgage brokers along with FHA policies provide more applicants an ability to obtain home loans and are filling a need within many communities. Vancouver will be served by this opportunity.

Know your options. Know your lending opportunities. Know the resources within your community.

Be sure to work with a licensed advisor that you know serves your community and will be there for you for the duration. Call 360-607-9312 or email for help preparing your credit application to best evaluate your mortgage options. We are your local advisor.

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