Medical Debt to Play a Reduced Role in Getting a Government-Backed Mortgage

If you apply for a government-backed mortgage, your medical debt will now have less effect (or no effect) on your chances of getting the loan.

By , Attorney

When medical debts get reported to credit reporting agencies, they appear on a person's credit reports and lower their credit scores. (The information in credit reports is used to calculate FICO and other credit scores.) Lower credit scores can make it harder to get a mortgage loan or other credit. But research by the Consumer Financial Protection Bureau has shown that past-due medical debts aren't a reliable indicator of a person's creditworthiness. One reason for this determination is that medical debts are often the result of a health-related emergency, not a pattern of money mismanagement.

So, along with the credit reporting agencies' decision to remove most medical debts from consumers' credit reports, the Biden-Harris administration provided guidance to all government agencies to eliminate medical debt as a factor for underwriting in credit programs, when possible and consistent with the law. On April 11, 2022, the administration announced that:

  • The U.S. Department of Agriculture (USDA) rural housing service is discontinuing the inclusion of any recurring medical debts into borrower repayment calculations, which measure a borrower's ability to repay a mortgage loan.
  • The U.S. Department of Veterans Affairs (VA) will review its underwriting guidelines for home loans and minimize or eliminate medical debt reporting as an indicator of creditworthiness wherever possible.

The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), has also eliminated medical debt from consideration when reviewing a borrower's creditworthiness.

So, Americans with medical debt can apply for government-backed mortgages without worrying that their medical debt could prevent them from getting the loan.

In addition, the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, is reviewing the credit models used when making lending decisions. They're exploring ways to make sure their methods of measuring creditworthiness are accurate, reliable, and predictive.

Effective date: April 11, 2022