Friends and Clients —
If you have a student loan or you are a cosigner on one, there is some good news on the horizon.
Fannie Mae, the nation’s largest underwriter of mortgages, recently introduced three new rules that affect those with student debt.
These new rules can make it easier to get a mortgage, and they can make it easier to pay off your (or your kids’) student loans.
Here’s more detail on all three of the recent changes:
1. For those on income-based repayment plans
Having a high debt-to-income ratio is the No. 1 reason for not being approved for a mortgage.
Now, Fannie Mae is changing how it calculates this number for those who have an income-dependent student loan, which is typically renegotiated every year.
Because of this changing payment schedule, Fannie Mae previously used a very conservative 1% of the total loan instead of the actual monthly payment.
From now on, it will calculate the debt-to-income ratio using the monthly payment, which could easily be several times lower.
If you have an income-based loan, this can drastically lower your debt-to-income ratio, and give you a much better chance of qualifying for a mortgage.
2. In case of third-party student-debt payments
Some folks are lucky enough to have their student debt paid by their parents or even by their employer.
The trouble so far has been that Fannie Mae didn’t take this into account when calculating the debt-to-income ratio.
Well, that’s the second new change.
If your employer or your parents have been paying off your student debt, and you can show evidence of this for the past 12 months, then this debt won’t be counted in your debt-to-income ratio.
Again, this makes it more likely you will qualify for a mortgage.
And if you can qualify for a mortgage right now, you definitely should. Rates are still at a historical low, and lots of great houses have recently come on the Portland area market.
You can check them all out here:
Click here to see all Portland homes for sale
3. Refinancing a mortgage to pay off student debt
Fannie Mae makes it possible to refinance your mortgage for more than the value of your home.
Normally, there is a 0.25% fee that applies to any cash you take out in this way.
The third big change is that Fannie Mae will now waive that fee when you use this cash to pay off a student loan.
This applies whether the loan is yours, or you’re a cosigner.
It’s important to point out that there are often benefits to education loans which you won’t get with a mortgage, such as deferment or income-driven repayment plans.
However, if the mortgage rate is significantly lower than the student loan rate, it can make sense to refinance in this way, and the new rule makes it cheaper to do so.
These three new rules from Fannie Mae can be a big money saver for the right person.
If you need help understanding these new guidelines to see whether they’re right for you, or you have questions about putting them into practice, get in touch with us at 503-265-8153. I’ll be glad to help.