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As per a recent survey, 73% of student loan borrowers say student loans and other education loans are the main reason behind their delay in buying a home. This scenario could be changing very soon. Previously, mortgage lenders always took into account student loans before lending a mortgage loan but off late, there have been few changes done by the Federal Housing Authority which made it easier for students to qualify for mortgage loans.
In May, Fannie Mae announced 3 vital changes to the underwriting requirements as they serve consumers with student loans. Among the changes, 2 of them could help the borrowers to get a mortgage loan and the third rule helped those borrowers with home equity diminish their student loan installments.
Repayment plans are driven by income
Before this announcement, borrowers who offered an income-driven payment plan for student loans found that since those payments could alter as part of the renewal of the annual plan, the lender who approves the mortgage couldn’t use that lower payment while computing the debt-to-income ratio of the consumer. The majority of the lenders need a debt-to-income ratio that is no higher than 43-50%. If a borrower is on an income-driven repayment plan, the lender was asked to use 1% of the balance in place of the actual payment amount of the borrower. Since credit reports take more than a month to show activities, borrowers are advised to apply for mortgages and get their payments in place a few months before starting with the mortgage application process.
Third-party payers
Increasingly large numbers of employers are taking into account the value of student loan repayment as a perfect benefit to the employees. Previously, the fact that the borrowers didn’t need to pay off their student loans on their own wasn’t considered in the DTI ratio that was required for mortgage loans. However, the Fannie Mae rules allow the lender to exclude payments from the calculation of mortgage as long as the borrower supplies documentation from a third-party.
The permission of paying student loans with equity in homes
The last change is good news for the borrowers who borrow private student loans than most of the federal student loan borrowers. As per new rules, borrowers with equity in their homes can refinance their mortgage to include funds to pay back some or all their student loans. Under the new rules, borrowers will get the same rate on the amount which they used to pay back the student loans for the new mortgage. Funds are directly sent to the student loan holder and you may use the program to pay loans that you’re personally responsible for.
Therefore, now that there are new rules from Fannie Mae, do you think it will become easier for people holding student loans to take our mortgage loans? If you are someone who has to take out student loans, you need not worry as there are ways in which Fannie Mae arranges things for you so that you can grab a home loan at a reasonable rate.
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