Federal Debt & FHA Loans

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Norah Tanner, part of the Houzd Mortgage Team, is back with some great info on how having federal debt could affect your ability to obtain an FHA Loan. Let’s take a look.

If you're thinking about buying a home using an FHA loan, understanding how your current debt plays into your approval is crucial, especially when it comes to federal debt. Many borrowers are surprised to learn that owing money to the federal government, whether through student loans, unpaid taxes, or delinquent federal debts, can seriously affect their mortgage application. Here's what you need to know.

What Is an FHA Loan?

FHA loans are government-backed mortgages offered by approved lenders and insured by the Federal Housing Administration. They’re popular among first-time buyers and those with lower credit scores or smaller down payments. But since they’re connected to the federal government, any unresolved federal debt can trigger extra scrutiny.

Types of Federal Debt That Matter

Federal debt refers to money you owe to the U.S. government. This can include:

  • Student loans backed by the federal government

  • Delinquent federal income taxes

  • Overpayments of federal benefits

  • Defaulted SBA loans

  • VA benefit debts

  • Any unpaid judgments to a federal agency

Even if you're current on your mortgage or other debts, having an unresolved issue with the federal government could throw up a red flag.

Why Federal Debt Is a Problem for FHA Loans

The U.S. Department of Housing and Urban Development (HUD), which oversees FHA loans, requires lenders to use a system called CAIVRS (Credit Alert Verification Reporting System). This database tracks individuals who are delinquent or in default on federal debt. If your name comes up, your loan application could be denied or delayed until the issue is resolved.

How Student Loans Factor In

Student loans are one of the most common forms of federal debt. If you’re in default on your student loans, you likely won’t qualify for an FHA loan until the loans are brought back into good standing.

Even if your student loans are not in default, FHA lenders must factor in your monthly payment (or a percentage of the balance if no payment is reported) when calculating your debt-to-income (DTI) ratio. A high DTI can reduce the amount you’re eligible to borrow.

What You Can Do If You Have Federal Debt

  • Check the CAIVRS Database: Lenders can access this system during the loan process, but you can also request information about any federal debts you're listed for by contacting the relevant agencies.

  • Rehabilitate or Consolidate Student Loans: If your student loans are in default, you may be able to rehabilitate or consolidate them to bring your account into good standing.

  • Set Up a Payment Plan: If you owe taxes or other federal debts, setting up and adhering to a repayment plan can make you eligible again for FHA financing.

  • Keep Documentation: If you’ve resolved or are actively addressing federal debt, keep detailed records. Your lender may need proof when processing your application.

Bottom Line

Federal debt doesn’t automatically disqualify you from getting an FHA loan, but it can block your approval or limit your options if it’s unresolved. The key is to be proactive—check your federal debt status, get current on any delinquent accounts, and work with your lender to understand the requirements. With a little preparation, you can clear the path to homeownership.