Biden administration will make it easier for student loan borrowers to obtain mortgage loans

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The Biden administration is easing federal mortgage lending rules to give student loan borrowers a better chance of getting approved for a mortgage loan.

Federal Housing Administration (FHA) announced changes to student loan calculations that should make it easier for student loan borrowers to obtain mortgage clearance. The policy change is based on the waiver of the current requirement that FHA mortgage lenders calculate the monthly student loan payment of the borrower as 1% of the outstanding student loan balance for loans that are not fully repaid or repayable. This includes borrowers who are on an approved deferral or deferral, or who are only required to make relatively small payments in accordance with an income-based repayment plan.

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 have a monthly payment of $ 245 per month in accordance with approved repayment plans targeting income. But an FSA-backed mortgage lender may “assume” that the borrower does have a $ 1,000 monthly payment due to longstanding FHA underwriting rules that apply 1% of the outstanding balance. This can prevent a borrower from obtaining a mortgage, depending on their overall credit profile and other debt obligations.

The new FHA policy will allow mortgage lenders to use the actual amount of the borrower’s monthly student loan payment, even if it is below the traditional amount of 1% of the total balance. And if the student loan borrower’s estimated payment is $ 0 (which is possible with an income-driven repayment plan), the mortgage lender automatically applies 0.5% of the outstanding student loan balance as the estimated payment, not 1%.

“Home ownership is the cornerstone of the American Dream and the best way to create wealth for generations. I am proud that the FHA is taking steps to make it easier for borrowers with student loan arrears to qualify for a federally insured mortgage, ”Housing and Urban Development Minister Marcia L. Fudge said in a statement. statement… “This new policy will go a long way for people across our country and is another step in our mandate to promote equity and homeownership opportunities.”

Advocates praised the policy change as an important step in tackling racial inequality. According to National Center for Education Statistics (NCES) 77.7% of black students take federal student loans to pay for higher education – much higher than the national average for all students (60%) and for white students (57.5%). Black students too more likely visit commercial establishments that are often accused of fraud and embezzlement.

“It is very important that we reflect on all the ways in which racial discrimination is woven into our society, especially in our housing system. Too many generations of black families have been denied access to affordable mortgages, owning their own homes, and amassing wealth to pass on to their children and grandchildren, ”said US Senator Sherrod Brown (D-OH), Chairman of the US Senate Banking, Housing & Development Committee. city ​​affairs. “I thank HUD and Secretary Fudge for taking this first step towards tackling inequalities in our housing system and look forward to continuing to work together to expand access to home ownership and address inequalities.”

The announcement was made by the Biden administration. starts hearing on possible proposals review major federal student loan repayment and forgiveness programs, such as income-based repayment plans and government service loan forgiveness.

Further reading

Biden Administration Announces Significant Renewal of Income Based Loan Repayment and Student Loan Forgiveness Programs

Will Biden cancel student loan debt? We will soon find out

Biden student loan forgiveness review: should you take steps now to cancel your student debt later?

If Biden doesn’t cancel his student loan debt, can he do it instead?

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