If you have student loans or you’re a cosigner for someone who does, Fannie Mae has implemented three new rules changes that will affect you.
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Fannie Mae—the nation’s largest underwriter for mortgages—has introduced three new rules that affect those who have or have cosigned for student loans. These rule changes can make it easier for you to get a mortgage and pay off your student loans.
The first change applies to how they calculate your debt-to-income ratio. If you’re on an income-based repayment plan, you might know that the No. 1 reason why they don’t get approved is a high debt-to-income ratio. Previously, Fannie Mae calculated this debt by taking 1% of the outstanding balance. If you have a huge student loan, that’s pretty substantial.
Now, they’ll use your monthly payment instead of the principle to calculate your debt. This will hopefully decrease your debt-to-income ratio and enable you to meet the criteria to secure a mortgage to purchase.
The second change relates to third-party payments. Some folks are lucky enough to have their parents or employers pay off their student loans. The trouble in the past, though, has been that Fannie Mae still counted that as debt against your debt-to-income ratio.
Now, if you can prove your parents or your employer has paid your student debt for the last 12 months, it will no longer be calculated in your debt-to-income ratio. This will make it easier for you to get approved for a mortgage, and with today’s low interest rates, the timing could not be better to buy. The market is very robust and we’re seeing inventory fly off the shelves. In many cases, it’s much cheaper to buy than it is to rent.
These new rules can be a big money saver for the right person.
The third change is they’re eliminating the 0.25% fee they normally charge if you choose to refinance your current home and use that cash to pay off your student loan. This applies whether the loan is yours or you’re a cosigner. There are often benefits to education loans that you won’t get with a mortgage, such as deferment or income-driven repayment plans. However, the mortgage rate is significantly lower than the student loan rate, so it makes sense to refinance this way if you want to save up to three percentage points.
These new rules can be a big money saver for the right person. If you need help understanding these guidelines to see whether they’re right for you or you have any questions about putting them in place, don’t hesitate to call me or shoot me an email. I’d be happy to assist you.
