HUD makes it easier for people with student debt to buy a home

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  • The Federal Housing Administration has announced new calculations to determine the amount of mortgage assistance.
  • The new rules will make it easier for people with student debt to buy a home.
  • HUD Sec. Marcia Fudge said the new calculations will especially help black borrowers.
  • See more stories on the Insider business page

If you have student debt, it may be difficult for you to afford a mortgage. This is a potentially big problem, as 45 million Americans collectively owe $ 1.7 trillion to students. But the federal Department of Housing and Urban Development (HUD) is trying to ease that burden.

Last week the Federal Housing Administration (FHA) – an agency within HUD – announced update calculations related to monthly student loan payments. Essentially, they are designed to prevent borrowers from overstating their debt, which should make borrowers more creditworthy and increase their chances of getting a mortgage.

Under the old FHA rules

mortgage lenders
will calculate the borrower’s monthly payment on a loan as 1% of its outstanding balance for loans that are not repayable, including borrowers with approved deferred payments and borrowers with income-driven repayment plans. The new rules remove this settlement requirement and allow lenders to use actual monthly loan payments, making it easier for the borrower to approve the mortgage application.

Like Forbes reportedif the borrower has an outstanding student loan balance of $ 100,000 but is approved for monthly payments of $ 245, under the old rules, FHA would calculate the borrower’s monthly payment as $ 1,000, which could prevent the borrower from obtaining a mortgage.

“Home ownership is the cornerstone of the American Dream and the best way to create wealth for generations,” HUD Secretary Marcia Fudge said in a statement. “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. This new policy will go a long way for people across our country and is another step in our mandate to promote equity. and the possibility of home ownership. “

According to a press release, the new policy will help homebuyers with student debt meet the minimum requirements for an FHA-insured mortgage loan and will empower the agency to serve first-time homebuyers, which account for 80% of the FHA demographic each year.

The FHA estimates that more than 45% of its demographic first-time home buyers also have student debt, with the majority of that debt coming from non-Colored borrowers. Artifice expressed about this disproportionate impact of student debt in an Axios interview on Sunday.

“Who has student debt? Poor people, black people, brown people, ”Fudge said. “We are the people with the most debts. And so the system is already leaning towards not being creditworthy. “

Fudge said part of the problem comes down to compliance failures Fair Housing Act, which, adopted in 1968, prohibits housing discrimination. Black Americans lag significantly behind White Americans when it comes to home ownership, Insider reports. making report Last year, black families paid $ 60,000 more for home ownership than white families.

And the student debt crisis only exacerbates the problem. Thirty-six civil rights organizations published in April the Civil Rights Principles for Student Debt Cancellation that “will help black and brown borrowers build wealth and enable our economy to move forward as millions of Americans can start families, buy homes and start small businesses.”

They noted that after graduation, black borrowers usually owe 50% more than white borrowers, and after four years, black borrowers owe 100% more. Fudge wants the new FHA calculations to ensure that the disproportionate burden of student debt does not make it impossible for black borrowers to own a home.

“For people of color, especially blacks, home ownership is wealth,” Fudge said. “For us, this is not only wealth, but also the wealth of generations.”

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