There’s some new, exciting news for first time home buyers that have student loan debt!

If your student loan debt has prevented you from being approved for a mortgage in the past, this may no longer be the case. The Federal Housing Administration has made some changes that will help expand access to FHA-insured mortgage financing to creditworthy individuals!


How were student loans calculated previously?

Your student loan debt is considered when determining your ability to pay a mortgage. The student loans could affect your approval for a loan, or the amount you can borrow to purchase a home.

Until recently, lenders had two options for calculating your student loan payment in your Debt-To-Income ratio:

  • The fully amortized payment (the payment amount that fully pays off the loan over its term)
  • 1% of your outstanding student loan balance

If your loan was in deferment, and your payment was zero, lenders were required to use that 1% calculation.  This caused many borrowers to be denied a mortgage due to their student loan debt, since that calculation caused their Debt-to-Income ratio to be significantly greater.


How will student loans be calculated now?

According to the Federal Housing Administration, the new updates will help remove barriers and provide more access for creditworthy individuals to affordable single family FHA-insured mortgage financing.

  • The actual payment or the monthly payment reported on your credit report
  • 0.5% of your outstanding loan balance (if the monthly payment on your credit report is zero)

Now, for student loans in deferment, the payment amount can be calculated at half of the previous amount!  By using 0.5% of the outstanding balance on the student loans instead of 1%, the amount of the borrower’s student loans that are calculated into the DTI ratio will now essentially be cut in half, or potentially even more than half!  This gives you the opportunity to be approved for a mortgage where you may not have qualified previously, or increase the amount you can borrow to purchase your home.


What does this look like for borrowers with student debt?

Since student loan debt can now be calculated differently, many more hopeful home buyers will be approved for a mortgage!  For example, before, when the calculation was at 1% of the outstanding balance on student loans, if the borrower’s student loan balance was $100,000, the monthly payment used to calculate their DTI ratio would’ve been $1,000. However, now at only 0.5%, the amount would only be $500.


If you have student loans, and you’ve ever been denied a loan in the past, contact us today! Let’s see if these changes can help you qualify for a mortgage!

Team Crescenzo specializes in approving loans that other lenders have denied. Please don’t hesitate to contact us so we can help you buy your first home!