Previously, having a student debt was a limitation for a Mortgage application, since the debt to income ratio calculations tended to make extremely high fees for the would-be home buyers. Now there have been some several rules changes about thistopic that makes possible and much easier to apply for a Mortgage Loan if you are still carryinga student debt. If you happen to be in this situation, join us to see the details of these new rules for mortgages.
The sweeping rules changes of Fanny Mae
Mortgage investor Fannie Mae has taken in consideration the roughly 43 million of Americans that are carrying student debt, and made some new policies to make easier to them to obtain a mortgage for their first home, or making a “cash-out” refinancing to pay off their student debt. So having a Student debt is perfectly ok for applying to a mortgage thanks to the following new policies:
New DTI ratio calculations for borrowers with federal reduced-payment plans
The Federal reduced-payment plans allow the borrowers to reduce the monthly fees of the student loan to the 10% of their discretionary income. Previous mortgage policies, for calculating the debt to income ratio, required to factor in the 1% of the Student loan, which was usually a much larger amount than what was actually paid monthly.
Now with this Fanny Mae new rules, your actual monthly payments, as reported to the credit bureaus, will count toward your DTI ratio calculations, so if you only pay $200 as a monthly fee, that figure is what will be taken into account for your debt ratios.
Removing the usual extra fee for cash-outs for homeowners with student debt
There are plenty of families that already have a home but are still paying the student loan along with the high mortgage fees. Most of them are parents that help their children to pay their studies through “parent plus” programs; or parents who have co-signed for paying the student loans of their children. These new Fanny Mae policies allow to all of them to apply for a “cash out” refinancing that removes the usual extra fee they charge for cash-outs, as long as the families commit to using the extra money to pay the student loan.
No longer included in the DTI the non-mortgage debts that are paid by the parents
Most students are supported by their parents, not only to pay for their studies, but also for other expenses as the credit card debts or the car monthly fees. This is important because all of this debts were previously reflected in the Debt to income ratio of the would-be home buyers, and they ended up limited because of several debts that they did not pay out of their pocket but were in charge of their mother or father.
So now, with the Fanny Mae sweeping rules changes, all of these non-mortgage debts that are being paid for other person, are no longer included in the debt to income computation, as long as long as it is proven that this payment has been made constantly by that other person for 12 months or more.