Fannie Mae Updates Student Loan Guidelines for Borrowers
April 28, 2017
As of April 25th, 2017 Fannie Mae updated their Selling Guide with revisions intended to allow lenders to better serve home buyers/borrowers carrying student debt. Student loan debt is a restrictive factor for prospective borrowers as it significantly affects their debt-to-income ratio and can prevent their eligibility for mortgages and homeownership. The debt-to-income ratio (DTI) is a percentage calculated by measuring debt against income.
waiving non-mortgage debt (including student loans, credit debt, and auto loans) from the DTI ratio when paid by someone else with 12 months of valid documentation, and
waiving the loan-level price adjustment when borrowers with at least 20% equity in their home want a cash-out to refinance and pay off student loans
These student loan debt solutions were implemented with the intention to make home ownership more achievable and more sustainable for borrowers with student loan debt by giving lenders more flexibility with the DTI ratio calculations.
Accepting the payment amount on the credit report and excluding the debt paid by someone else will lower the DTI ratio which will thereby allow home buyers and owners with high-interest rate student loans to refinance at lower rates, save money, and make it easier to obtain mortgages. Student loan debt affects the housing market more each year as it continues to increase annually- you can read more about this in our recent blog.