It's been a long time coming, but Borrowers that hold Student Loan Debt may have finally caught a break ...
Made effective on April 25, 2017, Fannie Mae gave Mortgage Lenders a much more definitive process with which to calculate Student Loan Debt ... a simplification that was definitely needed and long waited for. Until this change, it had been a real challenge for Mortgage Lenders to compute the actual Student Loan Debt of a potential Borrower.
Not all Student Loans get repaid in the same way. Nor do all Student Loan Services report Student Loan Debt the same way to the Credit Bureaus. The waters were pretty muddy for Lenders as to how to use the info available, (if it was available at all).
This new change by Fannie Mae addresses the Debt-to-Income - Qualifying (DTI) ratio calculations used by Mortgage Lenders while considering Student Loan Debt.
The new simplification states:
Mortgage Lenders can now accept the Student Loan Debt payment amount listed on a Credit Report. If the Student Loan Debt does not appear on the Credit Report, Mortgage Lenders can use 1% of the outstanding debt ... or ... a manually calculated, fully amortizing payment.
While this simpler approach won't help every potential Borrower, it removes some financing obstacles and makes it easier for Mortgage Lenders weighing mortgage approval for those applicants with Student Loan Debt. It should open the door for more potential Borrowers with Student Loan Debt to qualify for a Mortgage and buy homes.
April was a busy month for Fannie Mae, as they also announced they're loosening another lending guideline.
The guideline referred to now reads:
Certain debts paid by non-Borrowers can be omitted from a Borrower's Debt-to-Income - Qualifying Ratios (DTI) when the past 12 months of payments have been made satisfactorily. (This addresses debt reporting on a Borrower's Credit Report (such as credit cards, auto loans, and student loans) that is paid by someone other than the Borrower.)
It also addresses possible Refinance opportunities:
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.
These announcements are positive signs as they provide hope, assistance, and relief to those with Student Loan Debt. They are also an indication of a "relaxing" lending climate as we head into the busy summer real estate market.
At minimum, they show a general movement in the right direction to address the crushing Student Loan Debt keeping so many young Americans out of the housing market. These timely changes should allow more of these types of Borrowers to qualify for Conventional Loans.
So, what should a hopeful New Lenox - Chicagoland Home Buyer/Borrower with Student Loan Debt do next?
Take the following step-by-step action:
Assess your Student Loan accounts
Educate yourself on ALL options available to you regarding your Student Loan Debt
Make adjustments to your accounts that address your current and long-term needs
These recent changes will have an impact. Avenues to gain Mortgage Approval will be opened for many. Does that include you? To know for sure, you need to ask questions and take action to find out.
If you're hoping to buy a New Lenox - Chicagoland home, take that action now. Contact me to discover what financing options are currently available to you ...
* Looking to find what possibilities exist for you?Hoping to Buy or Refinance a Home in New Lenox, Will County, or elsewhere in the Chicagoland area? Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf. I'm easily found at:
Mortgage Originator - nmls #216987 - IL Lic. 031.0006220 - WI Licensed