Real Estate Purchases Just Got Easier for First-Time Homebuyers With Student Loan Debt

Young couple holding the keys for their new home
Vladimir Vladimirov / Getty Images

The Federal Housing Administration is changing the way it calculates monthly student loan payments to make it easier for first-time homebuyers, especially those in communities of color, to purchase a home with a federally backed FHA mortgage.

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When you apply for a mortgage, your lender uses many calculations to determine how much you can borrow. One of these is your debt-to-income ratio. The U.S. Department of Housing and Urban Development generally has allowed a maximum DTI of 43% of gross monthly income, including mortgage debt, for FHA loans. That means your total monthly payments toward debt, including revolving credit card debt, auto loans, personal loans and even student loans, plus your new mortgage payment, should not equal more than 43% of your gross monthly income.

For many prospective homebuyers with high student loan debt, that number represents a barrier to homeownership. But by changing the way lenders calculate money paid toward student loan debt each month, more people may find they can afford to buy a home.

Previously, the FHA calculated student loan debt payments as 1% of the the outstanding loan balance in cases where that amount was higher than the actual payment — even if the loan was not fully amortizing or currently in repayment. That means actual student loan payments could be significantly lower than calculations indicated. 

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Under the new policy, the FHA will use the borrower’s actual monthly student loan payment to calculate their DTI as long as the payment amount is above $0. Otherwise, the FHA will use 0.5% of the loan balance for its DTI calculation. “These changes remove unnecessary constraints for otherwise creditworthy borrowers and reinforce FHA’s ability to serve those who need us most, including first-time homebuyers and underserved communities,” Principal Deputy Assistant Secretary for the Federal Housing Administration Lopa Kolluri said in a press release.

An average of more than 80% of FHA-insured mortgages are for first-time homebuyers, the press release said. And more than 45% of these borrowers also have student loan debt. Studies show that student loan debt disproportionately affects Black Americans and people of color. Black college graduates owe an average of $25,000 more than white college graduates, according to Additionally, 48% of Black students owe an average of 12.5% more than they borrowed four years after graduation.

Lenders who underwrite FHA-backed loans can implement the new calculation method immediately to help more people with student loan debt quality for FHA mortgages. They must implement the changes for any FHA case numbers assigned on or after August 16, according to the press release. The FHA assigns a case number to an active FHA mortgage loan application once it has verfied identifying information for the borrower and the home they’re financing.

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About the Author

Dawn Allcot is a full-time freelance writer and content marketing specialist who geeks out about finance, e-commerce, technology, and real estate. Her lengthy list of publishing credits include Bankrate, Lending Tree, and Chase Bank. She is the founder and owner of, a travel, technology, and entertainment website. She lives on Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten, and three lizards of varying sizes and personalities – plus her two kids and husband. Find her on Twitter, @DawnAllcot.

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