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GREAT NEWS FOR HOME BUYERS WITH STUDENT LOAN DEBT!

May 3rd, 2017 9:47 AM by Margaret Michelle Williamson

Fannie Mae has moved to help the 44 million Americans that have student loan debt and want to own homes or use their homes to lower their student loan burden. It’s no surprise this debt inhibits many borrowers from becoming homeowners, even though homeownership can be an important step toward building wealth. The new policies are designed to help borrowers qualify for a home loan and reduce student debt. The policies are effective immediately and will empower lenders to:

Offer borrowers an option to pay off debt and get a better interest rate. Lenders can offer homeowners who have at least 20 percent equity in their homes a cash-out refinance to pay off one or more student loans. Borrowers will have an opportunity to convert higher interest rate student debt to a lower interest rate and potentially reduce their monthly debt payments. When at least one student loan is paid off directly to the student loan company, the lender can offer a lower interest rate through Fannie Mae.

Exclude debt paid by others, potentially making it easier for a homebuyer to qualify. Lenders can exclude a borrower’s non-mortgage debts that have been paid by others for the past 12 months from the ratio calculation, with proper documentation. Examples of debts that qualify would include credit cards, auto loans and student loans.

More flexibility on calculating student debt payments. Lenders can accept the monthly student debt payment amount listed on the credit report as opposed to using a percentage of the outstanding balance for the payment which must be used in qualification calculations.

Though the new guidelines are "effective immediately" upon the issuance of Fannie Mae's Lender Letter on April 25, there may a short lag time for pricing changes as the markets adjust. Source: Fannie Mae -- For more information on these changes, feel free to contact us.

Millions of students planning to attend college in the fall are scrambling to find enough money to pay for their education. Financial aid and federal loans don't always cover the staggeringly high cost of higher education. To bridge the gap, many families take out private loans. That can be a big mistake, financial experts warn. Most private student loans require a cosigner — typically a parent — who must put their good credit on the line to get the loan approved. Cosign a loan and you're a co-borrower, but many parents don't seem to understand that. "It's portrayed to them as if they're going to simply be a reference or endorser, when the truth is they'll be obligated to pay this loan if something happens and the primary borrower can't pay," said Seth Frotman, Student Loan Ombudsman at the Consumer Financial Protection Bureau (CFPB). "We now see more and more cosigners going into retirement facing unprecedented levels of student debt." A report from LendEDU, a website that specializes in private student loans and student loan refinancing, quantifies the risk to cosigners. The survey of 500 parents who had cosigned student loans found that a third admitted they did not fully understand the potential consequences. Thirty-five percent said they now regret doing it. About 57 percent of the cosigners said they believe their credit scores were negatively impacted as a result. And that makes sense, since cosigning a loan adds debt to your credit file, and that extra debt can lower your credit score. More than a third (34 percent) said these lower credit scores hurt their ability to qualify for a home loan, auto loan or other type of financing. Source: NBC News

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Posted by Margaret Michelle Williamson on May 3rd, 2017 9:47 AM

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