For homebuyers who have been denied for a mortgage due to student loan payments, relief may be in sight. As of April 25th 2017, Fannie Mae is relaxing rules on the amount of student loan debt a mortgage seeker can hold for Conventional mortgages.
Previously, Fannie Mae guidelines required lenders to count at least 1% of their student loan debt as a payment in order to qualify for a home loan. According to Fannie Mae, seven in every 10 graduates of public and non-profit colleges have student loan debt. The result is that 44 million Americans have student loans they are paying off. According to Fannie Mae’s press release, the average amount of student loan debt for one graduate is $34,000. Based on the previous calculations this would prevent many college graduates from becoming homeowners.
Fannie Mae changed the rules so that lenders can look at repayment plans that are INCOME-BASED instead of the 1% rule.
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Income Based Repayment Plans for Student Loans
Going back to that average of $34,000, a graduate paying off their student loans the old way would have to pay $340 per month, or 1% of the loan, to be approved for a mortgage. Depending on the kind of job they have and their other expense needs, that may not be reasonable. So now, lenders can see that they are paying what they can AFFORD based on their income, which can be LOWER than the 1% without hurting their odds of approval.
This is good news for college graduates who still have student loans and are looking to get approved for a mortgage. If you’d like to start that process right now complete our online mortgage application.
Good News for College Loan Debt Consolidation:
In addition to this news, home owners who are seeking to reduce their overall debt can refinance their home loan at a lower rate, cash it out, and pay off their student loans with the cash that’s available. According to Fannie Mae, the changes mean:
- Lenders can offer homeowners, who have at least 20 percent equity in their homes, a cash-out refinance to pay off one or more student loans.
- Borrowers will have an opportunity to convert higher interest rate student debt to a lower interest rate and potentially reduce monthly debt payments.
- When at least one student loan is paid off directly to the student loan servicer and delivered to Fannie Mae, they will waive the loan-level price adjustment making mortgage rates lower than standard cash-out refinancing.
Buying a Home with Student Loans and a Low Down payment
These new changes compliment other Home Loan programs for first time home buyers with down payment options such as the Conventional 1% Down Mortgage. Because this low down payment home loan is a Fannie Mae product, buyers can now used income based repayment plans for their student loans to qualify for financing.
This popular mortgage program is a great fit for recent college graduates that have not had an opportunity to save for a large down payment to become a home owner. Many millennials are choosing to take advantage of these programs to own rather than rent which builds equity and offers tax advantages over renting.
Contact us at (800) 555-2098 to schedule a consultation with one of our loan officers, or apply below to request information for a home loan.