The new program is called Student Loan Solutions, and represents a major shift by Fannie Mae.

At $1.4 trillion, student loan debt represents the U.S.’s second largest debt market behind mortgages. Believe it our not, Fannie Mae is making getting approved for a mortgage with student loan debt much easier.

The company is announcing policies that will assist homeowners and potential homebuyers with student loan obligations to qualify for a mortgage.  The new policy allows borrowers three options


1.) Student Loan Cash-Out Refinance:

Offers homeowners the flexibility to pay off high interest rate student debt while potentially refinancing to a lower mortgage interest rate.

 

To qualify for the Student Loan Cash-Out, homeowners must meet three basic guidelines.

-At least one student loan must be paid off, with cash-out proceeds sent directly to the student loan provider.
-Only the borrower’s student loans may be paid off
-Student loans must be paid off in full. No partial pay-downs allowed

Current Max LTVs

  • 1-unit home with a fixed-rate mortgage: 80% LTV
  • 1-unit home with an adjustable-rate mortgage: 75% LTV
  • 2-4 unit home with a fixed-rate mortgage: 75% LTV
  • 2-4 unit home with an adjustable-rate mortgage: 65% LTV

2.) Debt Paid by Others:

  • Widens borrower eligibility to qualify for a home loan by excluding from the borrower’s debt-to-income ratio.
  • The home buyer provides documentation of debt has paid by another party, on time, for the past 12 months. The lender completely eliminates the payment from DTI calculations. This applies to:

-Student loans
-Credit cards
-Auto loans
-Most other installment and revolving debt


3.) Student Debt Payment Calculation:

Makes it more likely for borrowers with student debt to qualify for a loan by allowing lenders to accept student loan payment information on credit reports.

Before the change, lenders had to use 1% of the outstanding balance or the fully amortizing repayment amount. But this isn’t what student loan holders were actually paying if they were on an income-driven repayment (IDR) plan such as PAYE and REPAYE.


“We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution,” said Jonathan Lawless, Vice President of Customer Solutions, Fannie Mae. “These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers.”

This is why Fannie Mae is adjusting its rules. It realizes that, while home values have increased more than 30% since 2012, homeowners are not gaining traction with paying off student loans.

Today’s rates are at historic lows. It’s the perfect time to buy a home or refinance, despite student loans that have hindered your progress in the past.

New student loan rules are in effect immediately.

If you’ve been denied, or simply have not yet tried, it’s a great time to see what you will be pre-approved for!

Call for your pre-approval today or click here to apply!

 

Reference:

Lucas, Tim. “Breaking: Mortgage Approvals Get Way Easier For Those With Student Loans in 2017.” The Mortgage Reports. N.p., 26 Apr. 2017. Web. 2 May 2017.

Swanson, Jann. “Fannie Moves to Accommodate Student Loan Debt.” Mortgage News Daily. N.p., 25 Apr. 2017. Web. 2 May 2017.

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