Tag: Student loans

Fannie Mae Relaxes Guidelines for Student Loan Debt

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.

RELATED ARTICLE: Buying a Home with Student Loan Debt

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

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Buying a Home with Student Loan Debt

Buying a Home with Student Loan Debt

In a few short months, thousands of college students across the country will walk across a stage, shake a hand, and graduate from a university with a degree and more than likely… a whole lot of debt. Student loans are often necessary to reach your educational goals, but will they affect your ability to qualify for other financing in the future? Here’s what you’ll need to know.

Qualifying for a Mortgage with Student Loan Debt

How your student loans will affect your ability to qualify for a mortgage depends on two things: the total amount you owe, and what type of home loan program you are applying for. There are many loan programs available today and they each treat student debt differently, by the way they calculate your monthly payment.

FHA & USDA Mortgages and Student Loan Debt

Effective last summer, the FHA and USDA began calculating monthly student loan payments at 1% of the total amount owed. Regardless of deferment or income-based repayment plans, 1% of the total must be used to calculate a borrower’s debt-to-income ratio (DTI).  If a borrower is on a standard repayment plan, and their monthly payment is greater than 1% of the total amount owed, the actual payment amount will be used.

For example, lets say John has $65,000 in total student loan debt, but he is in deferment for 6 months. His monthly payment will be calculated as $65,000 * 1% (.01) = $650 regardless of what he actually pays each month.  If, however, he is on a standard repayment schedule and his monthly payment is $780 per month, his payment must be qualified at $780.

VA Mortgages and Student Loan Debt

Last month, the Department of Veterans Affairs (VA) introduced a new policy regarding how student loan debt is calculated. Prior to this change, it was calculated the same way as FHA and USDA. Now, however, the payment is calculated based on 5% of the total student loan debt, divided by 12 months.

Lets get back to John. In this scenario, John’s payment will be calculated as $65,000 * 5% (.05) / 12 = $271. Under the VA mortgage program, John more easily qualifies, because his DTI is lower.

What if John’s student loans are in deferment? If his repayment is scheduled to begin within 12 months from the estimated closing date, 5% / 12 months calculation must be used. If not, however, the payment can be omitted altogether if written evidence can be provided as such.

Conventional Mortgages and Student Loan Debt

Under Fannie Mae Conventional guidelines, student loan payments are calculated under the same rules as FHA and USDA. Under Freddie Mac Conventional guidelines, however, an IBR payment can be used in place of the calculated amount.

Lets say John is on an income-based repayment structure and only pays $250 per month. John will simply need to provide a statement from his loan servicer showing the actual repayment terms.

Perhaps the best news yet is that our 1% Down Conventional program allows for an actual IBR payment to be used when qualifying a borrower. So, not only can John more easily qualify with a lower DTI, but he can put just 1% down on his home purchase!

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To apply for a Mortgage, call Riverbank Finance today at 1-800-555-2098.

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Qualifying for a Mortgage with Student Loan Debt

qualifying for a mortgage with student loansIf you are in the market for buying a house it is important to understand the implications of qualifying for a mortgage with student loans. Each year, at least 60% of college attendees take out some form of student loans to help with the ever growing costs of higher education.  While this can be an invaluable investment into one’s future, these loans can pose a challenge when it comes to buying a home.  Recently, new guideline changes have gone into effect that can substantially impact how someone qualifies for a mortgage.

FHA home loans are a great choice for first time home buyers with flexible work history and credit requirements!

The main way student loans impact an individual’s qualification is through their impact on an applicant’s Debt-to-Income Ratio (DTI).  This ratio gives a lender an idea of an applicant’s ability to reliably make monthly payments.  Simply put, this figure is calculated by dividing all monthly debt obligations (ex. Car Loans, Credit Cards, Mortgages, Student Loans, etc.) by gross monthly income.

Each mortgage program has different guidelines that are key to qualifying for a home loan with open student loan debts.  Calculating the monthly costs for student loans is especially tricky if the loans are deferred, in forbearance or not yet in repayment.

Regardless of program type, one of the most important actions a prospective home buyer much can take is to gather the payment documentation for the student loans.  This will allow your mortgage professional to ensure the most accurate qualification and best deal possible. The buyer’s credit report may not always accurately reflect the buyer’s minimum student loan payments which may affect underwriting approval.

Below are a few indicators of how student loan payments will affect a buyer’s debt to income ratio when qualifying for a home loan:

  • Conventional Mortgage with Student Loans
    • Regardless of deferment or forbearance, a payment must be counted against DTI
    • This payment will be calculated by either 1% of the remaining balance or the actual monthly payment, whichever is higher.
    • If a student loan payment is reporting on a credit report some conventional programs may allow this payment to be used even if it is under 1%.
    • Example: $24,000 in total student loans would add a minimum of $240 per month for qualifying purposes.
  • FHA Mortgage with Student Loans
    • Regardless of deferment or forbearance, a payment must be counted against DTI
    • The greater of the actual monthly payment from the credit report or 1% of the remaining balance will be used to calculate a minimum qualifying payment.
    • Income based repayment plans are no longer accepted if they are not fully amortizing.
    • Example: $24,000 in total student loans would add $240 per month for qualifying purposes if no payment is reporting on credit otherwise the underwriter will accept documentation showing the minimum student loan payments.
  • USDA Mortgage with Student Loans
    • Regardless of deferment or forbearance, a payment must be counted against DTI
    • This payment will be calculated by either 1% of the remaining balance or the actual fixed monthly payment, whichever is higher.
    • Income Based Repayment plans are not acceptable if they are less than 1% of the balance.
    • Example: $24,000 in total student loan payment would add a minimum of $240 per month for qualifying purposes.
  • VA Mortgage with Student Loans
    • The actual payment listed on the credit report or account statement will be counted against a borrower’s DTI.
    • Student loan debt may be excluded from DTI if the payment is not scheduled to begin for 12 months after the closing date (Documentation is crucial).

Get Pre-Approved to buy a home when you have student loans

We work with several first time home buyers and even repeat buyers have student loan debt.  It is crucial that you work with an experienced loan officer that knows the guidelines to assist you in qualifying for a mortgage when you have student loans.  With each mortgage program having different loan requirements it is important to understand how your debt to income is affected with each home loan option.

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