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The Biden government is relaxing federal mortgage loan rules to give student loan borrowers a better chance of being approved for a home mortgage.
The Federal Housing Administration (FHA) announced changes to its student loan calculation to make it easier for student loan borrowers to obtain mortgage approval. The policy change focuses on removing the current requirement that FHA mortgage lenders charge a borrower’s monthly student loan payment as 1% of their outstanding student loan balance for loans that are not fully amortized or will not be paid back. This includes borrowers who are on an approved forbearance or deferral, or who have relatively small payments to make under an income-based repayment schedule.
For example, a federal student loan borrower with an outstanding balance of $ 100,000, an income of $ 60,000 per year, and a family size of 3 may only receive a monthly payment of $ 245 per month under approved earnings-based repayment plans. However, an FSA-sponsored mortgage lender may “assume” that the borrower actually has a payment of $ 1,000 per month due to the FHA’s longstanding underwriting rules that apply 1% of the outstanding balance. This could prevent the borrower from taking out a mortgage, depending on their overall credit profile and other debt obligations.
The new FHA policy will allow mortgage lenders to use a borrower’s actual monthly student loan amount, even if it is less than the traditional 1% of total balance. And if a student borrower’s calculated payment is $ 0 (which is possible with an income-based repayment plan), the mortgage lender will automatically count 0.5% of the outstanding student loan balance as an accepted payment instead of 1%.
“Ownership is the cornerstone of the American dream and the best way to build intergenerational wealth. I am proud that the FHA is taking steps to make it easier for borrowers with student loan debt to qualify for a federally insured mortgage, ”said Marcia L. Fudge, Minister for Housing and Urban Development, in a statement. “This new policy will make a huge difference for individuals across our country and is another step in our mission to promote equity and opportunity for home ownership.”
Proponents hailed the policy change as an important step in tackling racial inequality. According to the National Center for Education Statistics (NCES), 77.7% of black students borrow government student loans to pay for a college education – significantly higher than the national average for all students (60%) and white students (57.5%) ). Black students also attend more for-profit institutions, which are often accused of fraudulent and predatory behavior.
“It is vital that we reflect all forms of racial discrimination in our society, especially in our housing system. Too many generations of black families are barred from getting an affordable mortgage, owning their own home, and building fortunes to pass on to their children and grandchildren, ”said US Senator Sherrod Brown (D-OH), US chairman -Senate Committee on Banking, Housing and Urban Affairs. “I commend HUD and Secretary Fudge for taking this first step to address inequalities in our housing system and look forward to working together further to improve home ownership access and eliminate inequalities.”
The announcement comes as the Biden government holds hearings on possible proposals to revise key federal student loan repayment and forgiveness programs, such as: B. Income-based repayment plans and public sector lending.
further reading
Biden Administration Announces Comprehensive Overhaul of Income-Based Repayment and Allocation Programs for Student Loans
Will Biden cancel the student loan debt? Maybe we will know soon
Biden’s Student Loan Forgiveness Review: Should You Take Steps Now to Relieve Student Debt Later?
If Biden doesn’t cancel the student loan debt, could he do so instead?
source https://collegeeducationnewsllc.com/biden-administration-will-make-it-easier-for-student-loan-borrowers-to-get-a-mortgage/
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