New 2017 Student Loan Guidelines Make Homeownership Easier
A new student loan guideline published by Fannie Mae will make it much easier for you to buy or refinance a home in 2017.
Since 2015, Fannie Mae would not allow you to buy a home without calculating a student loan payment that would pay off the loan at the end of the term.
The changes announced by Fannie Mae yesterday will double your chances of getting approved for a home loan if you have high student loan balances, and income based payments.
Your chances are doubled, because how you have Freddie Mac and Fannie Mae as options.
Fannie Mae vs Freddie Mac Conventional
Both Fannie Mae and Freddie Mac are considered conventional loans. For the most part, there is very little difference between the underwriting guidelines between the two.
There are very small nuances between the two sets of underwriting guidelines that are not always apparent until you get in a situation where one automated underwriting system will give you an approval, while another will not.
Freddie Mac has always allowed income based repayment plans for calculating your debt to income ratio. In some cases, you can qualify for a Freddie Mac loan even if your income based payment is zero.
There is not enough consistency between the reasons why a borrower would get approved for a Fannie Mae loan vs a Freddie Mac loan. But it happens quite often.
One example is a reader from this site that had an income based payment. We were able to get a Freddie Mac automated underwriting approval several months ago, then when we tried to update the approval recently, they were no longer qualified.
This stuff happens. I cannot even begin to tell you how frustrating it can be.
Yesterday, when the Fannie Mae student loan guideline was introduced, we ran it through Fannie Mae’s automated underwriting system and got it approved!
If your student loan is not deferred, and your payment is zero, the new Fannie Mae guideline will not help, however, Freddie Mac will allow this.
It’s not easy to find a lender that will allow you to use a zero payment on a student loan, but I know several lenders that will.
Student Loan Homebuyer Guidelines
As a homebuyer, your student loan payment must be accounted for in your debt to income ratio.
If you are paying your student loan on a fixed term, then your payment is fully amortized to pay off at the end of the term of the loan, and none of these changes will really affect you.
The new student loan guidelines will only apply if you have an income based repayment plan that does not pay off the loan in a fixed period of time.
If your student loan is deferred, or if you are on an income based repayment plan like IBR, PAYE, or REPAYE, you would be forced to use 1% of the loan balance when trying to qualify for a home loan.
Student Loan Refinance Guidelines
If you own a home, and have incurred student loan debt over the years, or have co-signed for your Son or Daughter on their student loan, the new Fannie Mae guidelines will help!
Fannie Mae will now allow you to pay off a student loan when refinancing your home, and not count it as a “cash out refinance”.
This is a really big deal. Fannie Mae considers a cash out refinance as a higher risk loan, and will limit your loan amount, and charge a higher interest rate or closing costs.
Under this new student loan guideline, you can refinance your home to pay off a student loan, and you will not be subject to the restrictions and higher costs typically associated with paying off debt.
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