HUD Amends Student Loan Debt Requirements for FHA Loans



Effective August 16, 2021, the U.S. Department of Housing and Urban Development (HUD) will be changing the standards of how student loan debt will factor into qualifying for a mortgage. According to Experian, one of the nation's three credit bureaus, the average American has about $40,000 in student loan debt. This is a huge financial setback for those who want to become homeowners.


New Student Loan Debt Calculations


Previously, the FHA didn’t distinguish between non-deferred and deferred student loans. In fact, regardless of student loan debt status, lenders were asked to factor in 2% of a graduate’s total loan balance when looking to qualify them for a mortgage. Now, with national student loan forbearance, HUD is trying to stay ahead of the curve. By allowing more flexible guidelines for graduates, hose who are in the process of building careers and would also like to buy a home shouldn’t be stopped because of guidelines that aren’t keeping up with the current trends of student loan forbearance.


Starting in August, the new rule will factor in whichever term is greater:


  • the payment amount reported on the credit report or the actual documented payment, when the payment amount is above zero; or

  • 0.5 percent of the outstanding loan balance, when the monthly payment reported on the Borrower’s credit report is zero.

These new rules should make it easier for first-time home buyers to qualify for an FHA loan.


Generational Wealth Among College-Educated Millennials


Millennials are now the new pioneers of home buying. While South Florida caters to an older subset of home buyers due to high rates of immigration and retirement, the rest of the country is getting ready to embrace the newly minted millennial wealth that is finding its way onto the negotiating table.


Back in 2016, millennial households were making a net worth of $28,000 a year. That’s about 40% less wealth than their Gen X and Baby Boomer counterparts. Fast forward only three years later, and college-educated millennials have managed to catch up substantially. Despite having entered a job market ravaged by the Great Recession, college-educated millennials have made huge financial gains. Those who graduated with a bachelor’s degree now have household incomes of about $51,000—a 182% wealth increase.


Paving a Bright Future


So yes, while millennials have been made fun of for years as the generation who could “never get it right”, they’re now on track to being the nation’s top earners. With the HUD’s new ruling and a strengthened QM rule, first time home buyers are stepping into a new era of housing—one that won’t be as bogged down by past recessions.


While inflation is currently on the rise, it’s a temporary setback due to disruptions in global supply chains. And besides, millennials have faced much worse and have still come out on top.