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New Student Loan Debt Calculation May Help More Members Get an FHA Mortgage


In June, the Biden Administration announced changes to the way student loan debt is calculated by lenders that may help borrowers with student loan debt be approved for an FHA mortgage loan. The change removes the current requirement that FHA mortgage lenders like AAFMAA Mortgage Services LLC (AMS) calculate a borrower’s monthly student loan payment as 1% of their outstanding student loan balance for loans that are not fully amortizing or are not in repayment. The new requirement for that calculation is now .5%. 

For outstanding student loans, regardless of payment status, the lender must use the payment amount reported on the credit report or the actual documented payment, when the payment amount is above zero; or .5% of the outstanding loan balance, when the monthly payment reported on your credit report is zero. If your student loan balance has been forgiven, canceled, discharged, or otherwise paid in full, the lender can exclude the payment from your monthly debt  calculation with written documentation from the loan servicer. 

“This change should lower the homebuyer’s overall debt-to-income ratio or DTI — putting the Members in a better financial position to qualify for the home they want,” says Stacey Daniels, Chief Operating Officer of AMS. Your Debt- to-Income (DTI) ratio is calculated by dividing your monthly debt payments by your monthly gross income.

Here’s How It Helps You

The amount of money you pay on your student loan each month impacts your DTI ratio, which is the percentage of your gross monthly income that you pay for your monthly bills. A lower DTI is preferred by lenders because that means you’ll have more money left for your monthly mortgage payment. 

Let’s say, for example, your student loan balance is $100,000. Using the 1% guideline, you would make a monthly payment of $1,000. Using the .5% guideline, your payment would drop to $500. 

That’s a lot more affordable and gives you a more favorable DTI ratio too. Just as important, if you have student loan debt you’re still paying on and hope to buy a home in the near future, you now have a better chance of being approved.

“There are cases where the 1% rule for student loan debt could have prevented the borrower from getting a mortgage, depending on their overall credit profile and other debt obligations,” says Daniels. “We feel with this change, more Members who are currently paying on their student loans will be able to qualify for a mortgage. If you’re thinking of homeownership, you should contact one of our Military Mortgage Advisors to help you understand your situation.”

More to Come?

The announcement from the US Department of Housing and Urban Development comes as the Biden Administration begins holding hearings on possible proposals to revamp major federal student loan repayment and forgiveness programs, such as Income Based Repayment plans and Public Service Loan Forgiveness. Please check back for updates that could impact you when they happen.

We’re Here to Help

AMS was recently approved by the FHA to underwrite mortgages insured by the agency, adding to the suite of mortgage offerings we make available to Members. Want to discover some other ways to lower your DTI? Still a little unclear on how student loans using .5% instead of 1% for the DTI calculation can matter so much? 

If you’re not certain about whether or not it’s the right time for you to purchase a home, or refinance an existing mortgage, please contact AMS online today or give us a call at (877) 387-6856. One of our Military Mortgage Advisors, who are licensed Mortgage Loan Originators, will provide you with an honest and fair comparison of your mortgage options, including a wide range of low-rate and low-cost mortgages designed to meet your needs.

Ensuring existing and prospective AAFMAA Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today!