Homeownership and education are both directly correlated to wealth. In the past, however, student loans could restrict a borrower from a mortgage. The Biden administration is seeking to change federal mortgage lending rules to provide better opportunities in acquiring a mortgage for borrowers with student loan debt.
The Federal Housing Administration (FHA) declared changes in their student loan calculations; these changes are creating a better playing field for equity among first time home buyers. Let us break this change down and explain in the benefit of this calculation change.
Previously, FHA lenders would calculate a borrowers monthly student loan payment as 1% of their total outstanding loan amount. However, this percentage does not always equate to the actual price the borrower pays a month. For example, if a borrower has $100,000 in student loan debt, the FHA will calculate that the borrower has a monthly payment of $1,000. The borrower may only pay $500 a month due to their personal repayment plan. Remember monthly payments are a significant part of the equation when determining a potential borrower’s mortgage rate, thus, overestimating a borrower’s monthly debt payment will negatively impact their ability to qualify for a mortgage.
The beneficial change being administered by President Biden is that FHA mortgage lenders may now use the actual monthly payment a borrower pays, even if it is below the typical 1%. Said by Lopa Kolluri, Principal Deputy Assistant Secretary for the Federal Housing Administration, “these changes remove unnecessary constraints for otherwise creditworthy borrowers and reinforce FHA’s ability to serve those who need us most.” This minute change in FHA lending rules will have a rather large impact on addressing home equity moving forward.
“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,” exclaimed U.S Senator Sherrod Brown. Access to homeownership is looking more promising. If you have student loan debt, and want to discuss your home mortgage abilities, contact a team member today!