A student graduate stands on a cliff with a student debt bill.

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FHA Eases Requirements for Home Buyers With Student Loan Debt

June 21, 2021

As part of its ongoing observance of National Homeownership Month, the National Association of REALTORS® continues its push to address the persistent lack of available housing inventory in America. Last week NAR released a report illustrating just how dire the shortage is in this country, and its dramatic findings have gained the attention of real estate stakeholders and policymakers throughout the country.

While NAR’s advocacy team works to find new, creative, and effective ways to increase housing construction and supply, the fight to expand access to the American dream of homeownership received a positive, critical boost last week. As part of its efforts to expand access to affordable mortgages, the Federal Housing Administration announced it would be easing requirements for home buyers with student debt who are trying to qualify for a federally insured mortgage.

Last summer NAR joined a coalition of roughly 20 housing groups in calling on leadership at the Department of Housing and Urban Development and the FHA to enact changes to its underwriting policies regarding the calculation of a borrower’s student loan debt. The issue of student loan debt has increased in significance and attention at NAR over recent years, as these burdens have had a significant, lasting impact on America’s next generation of home buyers. In fact, HUD has reported that more than 80% of FHA-insured mortgages are for first-time home buyers, while the FHA estimates that more than 45% of these borrowers also have student loan debt.

Making the issue even more urgent for policymakers is the disproportionate impact student loan debt has had on minorities.

Despite having long been blamed as a roadblock to homeownership for aspiring buyers across all demographic groups, Black home buyers are more than twice as likely than Whites to have student loan debt and be rejected for mortgage loans, according to a study released this year from the National Association of REALTORS®, Snapshot of Race & Home Buying in America.

“Homeownership is the cornerstone of the American dream and the best way to build generational wealth,” HUD Secretary Marcia Fudge said recently. “I am proud that the FHA is taking action to make it easier for borrowers with student loan debt to qualify for a federally insured mortgage. This new policy will make a big difference for individuals throughout our nation and is another step in our mandate to promote equity and opportunity for homeownership.”

The gap in homeownership between White and Black Americans is larger today than it was in 1960, when it was effectively legal to deny someone a home because of their race.

NAR on Friday joined Secretary Fudge and a host of groups committed to closing this gap as they launched the Black Homeownership Collaborative. At the event held on the campus of Cleveland State University, the group unveiled a seven-point plan, dubbed "3 by 30," which aims to add 3 million more Black homeowners in America by 2030.

“The persistent gap in homeownership rates among Black and White Americans illustrates how racial inequality in our society translates into wealth inequality,” NAR’s Vice President of Policy Advocacy Bryan Greene said as part of the press release on Friday’s event. “NAR is pleased to join this dedicated group of widely respected organizations in the Black Homeownership Collaborative to pursue our shared goals. We look forward to continuing our work to secure federal and local-level policies which will raise Black homeownership levels, strengthen communities, and improve the American economy.”

Ultimately, the groups will continue to pursue policy reforms like the FHA’s student loan change. Lopa Kolluri, principal deputy assistant secretary for the FHA, said the agency’s announcement will remove “unnecessary constraints for otherwise creditworthy borrowers” in helping to better serve first-time home buyers and underserved communities. Some lenders may implement the new policy immediately. The deadline for the changes to take effect is Aug. 16.