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HUD is seeking information about the impact that the frequent use of BNPL products may have on borrowers’ ability to meet housing-related expenses, including rent or mortgage payments

July 8, 2025 //  by Finnovate

The Department of Housing and Development is seeking information about the impact that the frequent use of Buy Now, Pay Later (BNPL) products may have on borrowers’ ability to meet housing-related expenses, including rent or mortgage payments. Comments are due on or before August 25, 2025. HUD noted that use of BNPL services is growing rapidly and is changing how individuals manage short-term expenses. “BNPL loans essentially create ‘phantom debt’ that mortgage lenders may not be readily able to detect as needed to fully assess a borrower’s outstanding obligations or debt management behavior,” according to HUD. Interestingly, HUD did not expressly address the ramifications of BNPL arrangements with regard to the “ability to repay” requirements applicable to residential mortgage loans. HUD said that FHA’s policies would largely exclude BNPL loans from consideration in underwriting because closed-end debts are not required to be included if they will be paid off within 10 months from the date of closing and the cumulative payments of all such debts are less than or equal to 5% of the borrower’s gross monthly income. The department continued, “Understanding the intersection between BNPL lending and housing-related expenses is crucial for determining whether FHA’s current policies are adequate or if development of BNPL-specific policies are warranted for FHA to continue to support financial self-sufficiency and housing stability.”

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