Now It’s Easier for Real Estate Purchasers with Student Loan Debt

The Federal Housing Administration (FHA) is changing the way it calculates monthly student loan payments to make it easier for first-time homebuyers, especially those in communities of color, to purchase a home with a federally backed FHA mortgage.

When you apply for a mortgage, your lender uses many calculations to determine how much you can borrow. One of these is your debt-to-income ratio. The U.S. Department of Housing and Urban Development generally has allowed a maximum DTI of 43% of gross monthly income, including mortgage debt, for FHA loans. That means your total monthly payments toward debt, including revolving credit card debt, auto loans, personal loans and even student loans, plus your new mortgage payment, should not equal more than 43% of your gross monthly income.

For many prospective homebuyers with high student loan debt, that number represents a barrier to homeownership. But by changing the way lenders calculate money paid toward student loan debt each month, more people may find they can afford to buy a home.

Previously, the FHA calculated student loan debt payments as 1% of the the outstanding loan balance in cases where that amount was higher than the actual payment - even if the loan was not fully amortizing or currently in repayment. That means actual student loan payments could be significantly lower than calculations indicated.