Why should student loan debt be removed from consideration in the FHA Loan qualification process?

The simple answer is that student loan debt has a severely negative impact on the ability to obtain homeownership status for millions of Americans. Not only does this lock many of the people who trusted our education system to further their future into renting long term, or possibly forever, it also damages our communities with families not being able to achieve the American Dream of homeownership. Renting creates a situation where families spend thousands of dollars yearly without having anything to show for it or to help in furthering our country for future generations economically.

Should people who wanted to do better for their families by attending college be penalized from generating future wealth because they had to take out student loans in exchange for education?

Does it make sense for the same millions of people who pay hundreds of dollars more in rent to not be able to purchase a home with a lower mortgage payment because their student loan debt is a factor in qualifying for an FHA home loan?

...And if you say it can't be done, medical bills and collections are not taken into consideration already when qualifying for an FHA Loan. We can surely remove student loan debt as well!

...But how does having student loan debt really affect someone being able to qualify for an FHA Loan to purchase a home?

There are three main requirements for someone to purchase a home using an FHA Loan.

1. Having income sufficient to repay the loan.
2. Having the credit score to show that you're willing or can be trusted to repay the loan.
3. Debt To Income Ratio: Having enough discretionary income to have the FHA insure the loan so it can be extended to the borrower by the mortgage lender.

Requirement #3 is where it would make sense to see student loan debt removed from consideration.

Here's how fhahandbook.com defines Debt To Income Ratio (DTI)...

The debt-to-income ratio (DTI) is a percentage that shows how much of a person's income is used to cover his or her recurring debts. Lenders calculate DTI at the monthly level using the borrower's gross, or pre-tax, income.

There are actually two numbers used for FHA qualification:

The "front-end" ratio looks at housing-related debts only (monthly mortgage payments, property taxes, etc.).
The "back-end" number takes all recurring monthly debts into account. This can include the mortgage payment, credit cards, car loans, etc.

Here's an example of how this really works...

Janet is a single, black American with a bachelors degree, living in Metro Atlanta. She makes $53,783 yearly. She has $52,726 in student loan debt. She also has a car note of $473.50 (average car note in Georgia according to CNBC.) And of course, like the average American, she has a monthly credit card bill of $123.88 (according to Wallethub).

Assuming she has the average credit score of 654 (according to TheBalance), can she qualify for the average home in Metro Atlanta based on her debt to income ratio? Let's see...

DTI Ratio = (Monthly debts) / (Gross Income)

1% of her student loan balance must be included in her monthly debts for her DTI Ratio...which equals $527.26.

The monthly payment on an average priced home purchased today using an FHA Loan in Metro Atlanta today is around $1,700.

Monthly Debts = $527.26 + $123.88 + $473.50 + $1,700 = $2,824.64
Gross Income= $53,783/12 = $4,481.92

DTI Ratio= 63%, Making Janet INELIGIBLE to purchase today's average priced home using an FHA loan.

If you look at this example and remove student loan debt from consideration in the debt to income ratio calculation, her DTI would now be 51%, making her eligible to purchase that same home.

In Conclusion...

You should sign this petition so we can get Congress to remove student loan debt from consideration in purchasing a home using FHA Loans so that many, hardworking Americans are not locked out of homeownership because of a decision to go to college when they were teenagers. Millions of Americans were simply following what their teachers, parents, counselors and advisors told them to do by pursuing higher education and now it should not be the reason to be locked out of creating generational wealth.

Sign & Share today! Thank you for your support!