Real Estate Purchases Just Got Easier for First-Time Homebuyers With Student Loan Debt

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The Federal Housing Administration is changing the way it calculates monthly student loan payments to make it easier for first-time buyers, especially in colored communities, to purchase a home on a federally supported FHA mortgage.

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When you apply for a mortgage, your lender uses many calculations to determine how much you can borrow. One of them is your debt-to-income ratio. The US Department of Housing and Urban Development has generally approved a maximum DTI of 43% of gross monthly income, including mortgage debt, for FHA loans. That means your total monthly payments for debt, including revolving credit card debt, auto loans, personal loans, and even student loans, plus your new mortgage payment, shouldn’t be more than 43% of your gross monthly income.

For many potential homebuyers with high student loan debt, that number poses a homeownership barrier. But by changing the way lenders charge student loan money each month, more people are finding that they can afford to buy a home to buy.

Previously, the FHA calculated student loan debt payments as 1% of the outstanding loan balance if that amount was greater than the actual payment – even if the loan was not fully amortized or is currently being repaid. This means that the actual payments for the student loan could be significantly lower than the calculations given.

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Under the new policy, the FHA will use the borrower’s actual monthly student loan payment to calculate their DTI as long as the payment amount is above $ 0. Otherwise, the FHA will use 0.5% of the loan balance for their DTI calculation. “These changes remove unnecessary restrictions on otherwise creditworthy borrowers and strengthen FHA’s ability to serve those who need us most, including first-time home buyers and underserved communities.” Lopa Kolluri announced this in a press release.

On average, more than 80% of FHA-insured mortgages are for first-time home buyers, the press release said. And more than 45% of these borrowers also owe student loans. Studies show that black Americans and people of color are disproportionately affected by student loan debt. Black college graduates owe an average of $ 25,000 more than white college graduates, according to EducationData.org. In addition, 48% of black students owe an average of 12.5% ​​more than they borrowed four years after graduation.

Lenders who take on FHA backed loans can immediately implement the new calculation method to help more people with student loan quality for FHA mortgages. They must implement the changes for all FHA case numbers that were issued on or after August 16, according to the press release. The FHA will assign a case number to an active FHA mortgage loan application once it has verified the identification information for the borrower and the home they are funding.

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About the author

Dawn Allcot is a full-time freelance writer and content marketing specialist interested in finance, e-commerce, technology, and real estate. Her long list of publications includes Bankrate, Lending Tree, and Chase Bank. She is the founder and owner of GeekTravelGuide.net, a travel, technology, and entertainment website. She lives on Long Island, New York, with a veritable menagerie made up of 2 cats, a wild kitten and three lizards of different sizes and personalities – plus her two children and her husband. Find her on Twitter, @DawnAllcot.

source https://collegeeducationnewsllc.com/real-estate-purchases-just-got-easier-for-first-time-homebuyers-with-student-loan-debt/