A recent USA Today article stated “Americans now have more than $1.4 trillion in unpaid education debt, according to the Federal Reserve”. Average student loan debt for 2015 graduates in North Carolina is $25,645. Plus many graduates have so much more. It is not uncommon for a buyer to owe $50,000 – $100,000 or more. This is a serious hindrance when it comes to buying a home. But lately lending agencies have started loosening guidelines to help homebuyers. Fannie Mae student loans are the latest to treat student loan payments differently. Therefore, Fannie Mae released very flexible and lenient ways to help homebuyers with student loan debt.
Fannie Mae Student Loans Simplified to Help Buyers
It is better late than never that Fannie Mae allowed for easier mortgage qualification with existing student loan debt. VA loans and Freddie Mac conventional loans already have some flexible ways to help buyers. So now Fannie Mae steps up for borrowers using a conventional loan to purchase a home. They do this by enhancing several guidelines that replace earlier ones during the downturn in the economy.
Fannie Mae Student Loans Payment Calculation
The first of the student loan changes deals with how minimum payments are calculated. Lenders qualify borrowers based on debt ratios. Debt ratios are calculated by comparing monthly debt payments including the new mortgage payment to the monthly income. But student loans are tougher to figure as a car loan that has the same payment the whole term. Student loan payment options include fully amortized over a term, graduated payments, Income Based Repayment (IBR), deferred, or in forbearance. The recent changes simplify calculating minimum payments for IBR student loans.
Prior to this change, lenders had to use 1% of the outstanding balance as a minimum payment. So this 1% minimum student loan payment caused many buyers to get denied for excessive debt to income ratio. But now using the credit report payment is allowed as long as it is not $0 or deferred. If the credit report doesn’t state a payment amount or it is $0, the lender has two options. First, using 1% of the outstanding balance would be used. Next, calculating a fully amortized payment based on the documented loan repayment terms could be used. Either option may be used to help the buyer qualify for a home purchase.
Fannie Mae Requirements for Debts Paid By Others
Another area that restricts homebuyers of all ages is student loan payments paid by others. For instance, student loan payments in the parents’ name paid by the children had to be counted in the qualification of all parties. But now lenders may exclude student loan payments from a buyer’s debt ratio if the last 12 payments are proved to be paid by another. In addition to student loan payments, installment loans and other monthly debts other than mortgage may be excluded. This could be huge in qualifying for a home purchase. In order to prove this exclusion, make sure to provide the last 12 months cancelled checks for the debt.
Many organizations, politicians, Realtors, and mostly buyers hope that the mortgage industry will loosen guidelines. So it is with guideline changes like these at the agency levels that will help. The dream of homeownership may now be achieved by more renters or others living with family. This is especially helpful for millennials. Millennials are the ones that have taken the brunt of the high cost of a college education. It is our goal to help as many families achieve homeownership affordably and ethically.
Author: Russell Smith
Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.