Student loan debt represents the 2nd largest debt market in the US with Mortgage debt representing the largest. Fannie Mae announced 3 options to help homeowners and potential homeowners qualify for a mortgage.
- Student loan payment calculator: Fannie Mae will now accept the student loan payment information as reported on the credit reports. This benefits those who are participating in a federal reduced payment plan or income based repayment plan as their monthly payments could be considerably less than the actual payment. Previously lenders were required to use the greater of 1% of the loan balance or the actual payment in the debt to income ratio.
- Debt Paid by Others: This widens the borrower’s eligibility to qualify by excluding certain debt that is being paid by someone else. If the lender can provide documentation that a non-mortgage debt has been satisfactorily paid by another party for the last 12 months, then that debt can be excluded from the debt-to-income ratio. This includes installment loans, student loans or other monthly debts, even if the party is not obligated on the debt.
- Student Loan Cash-Out refinance: Fannie Mae will allow the use of existing home equity to payoff student loan debt. This gives homeowners the ability to payoff high student loan debt while potentially refinancing to a lower interest rate.