Is ‘Buy Now, Pay Later’ Putting Homeownership at Risk? HUD Takes a Closer Look

As “Buy Now, Pay Later” (BNPL) financing becomes a staple of modern consumer spending, the U.S. Department of Housing and Urban Development (HUD) is asking a critical question: could this fast-growing financial trend be making it harder for Americans to afford housing or even qualify for a mortgage?

HUD is currently investigating how BNPL obligations might be influencing household financial stability, rent and mortgage affordability, and risk evaluation in the lending process. This move comes as part of a broader initiative to modernize FHA policies in response to evolving borrower behavior in today’s credit landscape.

BNPL: Convenient Spending or Hidden Risk?

BNPL services allow consumers to split purchases into multiple smaller payments, often with no interest if paid on time. While these options offer short-term flexibility, they also introduce a new layer of risk especially when used frequently and without oversight.

A 2025 report from the Consumer Financial Protection Bureau (CFPB) revealed that over one in five U.S. consumers with a credit profile used BNPL in 2022, and many were repeat users. More than 60% had multiple BNPL loans active at once, raising red flags about overextension and liquidity issues.

Compounding the issue: most BNPL debts don’t show up on traditional credit reports. This creates what HUD describes as “phantom debt” financial obligations that exist outside the visibility of mortgage underwriters.

“BNPL is reshaping how consumers manage cash flow,” said a HUD spokesperson. “But when borrowers apply for a mortgage, those hidden obligations may skew a lender’s ability to accurately assess their true debt burden.”

HUD’s Request for Industry Feedback

Through its recently issued Request for Information (RFI), HUD is calling on lenders, underwriters, consumer advocates, and industry experts to weigh in. The goal is to understand how BNPL activity is currently being accounted for (if at all) and whether new policies are needed to protect both borrowers and the stability of the housing finance system.

Specifically, HUD wants to explore:

• How mortgage underwriters can identify and evaluate BNPL debts, especially when they’re not reflected in credit reports.
• Whether BNPL usage is impacting borrowers’ debt-to-income (DTI) ratios, a critical factor in mortgage eligibility.
• The challenges lenders face in assessing credit risk when BNPL loans are in play.
• Potential policy solutions to ensure these obligations are considered during underwriting, without creating unnecessary burdens.

This initiative signals HUD’s broader commitment to aligning its FHA mortgage insurance standards with today’s rapidly changing financial behaviors especially as affordability and stability remain top concerns in the housing market.

Current Guidelines and Industry Developments

According to guidance cited by law firm Ballard Spahr, current FHA policy largely excludes short-term BNPL debts from mortgage underwriting unless their monthly payments collectively exceed 5% of a borrower’s gross monthly income and will continue beyond 10 months after closing. This means many BNPL obligations may legally be left out of loan calculations under today’s framework.

But that may change, especially as the financial industry develops new tools to better capture BNPL activity.

One of the most significant moves came from FICO, the global analytics company behind the widely used credit score system. FICO recently launched FICO Score 10 BNPL and FICO Score 10 T BNPL the first credit scoring models in the U.S. specifically designed to incorporate BNPL data.

“Buy Now, Pay Later loans are now a key part of the consumer finance experience,” said Julie May, Vice President and General Manager of B2B Scores at FICO. “Our new BNPL-enhanced scores help lenders better understand credit readiness, especially for consumers whose first experience with credit comes through BNPL.”

FICO’s year-long research revealed a unique pattern among BNPL users: many open several loans in a short time span, which can distort traditional risk signals. In response, the new models group multiple BNPL loans into aggregated categories, giving lenders a more accurate picture of consumer behavior.

According to FICO, this method not only preserves predictive accuracy but may also help increase credit scores for responsible BNPL users ultimately expanding financial inclusion for borrowers with thin or limited credit files.

Balancing Innovation and Risk

HUD’s interest in BNPL underscores a broader concern in the housing finance space: how to adapt regulatory policies to financial innovation without compromising sound lending principles. As alternative credit products gain ground, federal agencies face increasing pressure to modernize underwriting rules while still guarding against systemic risk.

BNPL may be helping consumers navigate everyday expenses, but if not carefully managed or disclosed, it could also lead to unintended consequences especially for those trying to achieve the dream of homeownership.

HUD’s open call for feedback aims to ensure that future policy changes are well-informed, equitable, and grounded in real-world consumer behavior.

The RFI remains open to public comment, and stakeholders across the housing, credit, and fintech industries are encouraged to contribute their insights. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.