In the past year, Fannie Mae has loosened guidelines when it comes to how student loans payments are looked as monthly debts. This change is making it easier for those with larger student loan debt burdens, to obtain a home loan.
When it comes to obtaining a home loan, one of the critical components of being able to qualify is the debt to income ratio. The debt to income ratio takes your monthly minimum payments on your credit report (mortgage payment, student loan payments, credit card payments, etc.) and divides them by your monthly gross income.
In general, to obtain a conventional loan, your monthly debt to income ratio cannot exceed 50%. Or in other words, if you make $5,000 in income per month pre-tax, your monthly payments cannot exceed $2,500.
However, two big changes now make it easier to qualify for a Fannie Mae backed conventional home mortgage loan, when it comes to student loans.
Monthly Student Loan Payment Calculation
Previously on a Fannie Mae conventional loan, you had to qualify based on a payment equal to 1% of the balance of your existing student loan or the fully amortizing payment of the loan.
For many who had income based repayment loans or extended payment plans on their student loans, this meant that the calculated student loan payment, for home loan qualification, far exceeded their actual monthly payments.
The current standard allows for whatever the current documented payment is listed, to be used for qualifying. In other words, if you have a $50,000 in student loans and your monthly payment is only $20, then you would only qualify for a new home loan, based on that $20 payment.
You Can Also Exclude Student Loan Payments Made By Others
If you can provide documentation that your student loan debt has been paid on time by someone else for the past 12 months, then you can exclude the payment all together.
If for instance, a parent is paying a child student’s loan and has for the past 12 months, then that debt will not be considered a debt for home loan qualification.
Put together, these changes create more opportunities for those with student loans, to qualify for a conventional home loan. Of course, all standard conventional home loan guidelines still apply, but if you were unable to qualify for a home loan previously, due to student loan debt, it may now be the time to look into home loan qualification once again.
For more information on current home loan programs and options for existing and potential homeowners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: email@example.com or online at www.strategicmtgaz.com
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