If you’re looking to buy your first home, but still paying off student debt get ready for some good news.
It’s expensive to go to college. Ask any parent with a kid in school or college student and you’ll find out just how expensive it can be, even for a public college. That means student loans are more and more common than they used to be. Recent statistics show there is more than $1.4 trillion in outstanding student loan debt with the average college graduate owing nearly $40,000. That’s twice as much as there is in total credit card debt throughout the United States. To get a good job students are told they need a college education but many having to go into debt in order to get a good job.
Fannie Mae is the single largest buyer of conventional loans and typically whenever Fannie makes an underwriting adjustment other loan programs soon follow. Freddie Mac is the second largest buyer of conventional loans right behind Fannie and while Freddie has yet to make an announcement regarding underwriting adjustments for those with student loan debt we can expect one soon. Together, Fannie and Freddie account for almost half of all mortgage loans issued each year.
Solving the Student Debt Barrier
Student loan payments typically kick in six months after graduation and depending upon the type of loan, terms can last up to 20 years. But when they do get their first job and start paying their student loans back they may also soon discover the student loans that got them into college are also keeping them out of homeownership. Debt levels are so high homes are no longer affordable. Remember, these are the first time home buyers that drive the real estate market.
To help with these student loans there are income-driven repayment plans which are based upon how much discretionary income they have each month. Such plans allow borrowers to commit as little as 10% of discretionary income each month as a legitimate payment and not be considered past due or otherwise not following the terms of the note. That means the loan balance would actually grow instead of being paid down. But recent changes by Fannie Mae have addressed student loan debt to help borrowers buy their first home.
One way Fannie has helped is to determine who is making the monthly payments. If a third party such as a parent has been making the monthly payments the payments are ignored when calculating debt to income ratios. As it relates to income-driven programs, Fannie Mae now allows the income-driven payments to be factored into the debt ratio rather than the fully indexed amount.
Find Out if You Qualify
These are recent changes announced just last April and for those who have tried to purchase a home before but student loan payments held them back, they might want to take a second look. Borrowers who have previously applied for a home loan with student loan debt that didn’t qualify may want to contact me for another look.