How Do Fannie Mae’s Recent Changes Affect Those With Student Debt?

Cedar City Real Estate Podcast

If you have a student loan or you are a cosigner on one, I have some good news for you.

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Fannie Mae, the nation's largest underwriter of mortgages, recently introduced three new rules that will 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.
The first change is for those on income-based repayment plans, where having a high debt-to-income ratio is the No. 1 reason for not being approved for a mortgage.
Fannie Mae previously used a very conservative 1% of the total loan instead of the actual monthly payment. This can drastically lower your debt-to-income ratio and give you a much better chance of qualifying for a mortgage.
Some folks are lucky enough to have their student debt paid by their parents, or even by their employer. The thing is, Fannie Mae didn't take this into account when calculating the debt-to-income ratio. That's the second new change.

If you can qualify for a mortgage right now, you definitely should.

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. This makes it more likely you will qualify for a mortgage.

If you can qualify for a mortgage right now, you definitely should. Rates are still at a historic low, and lots of great houses have recently come on the (area) market.
Fannie Mae also 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. 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.
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, give me a call or send me an email. I’ll be glad to help.