Fannie Mae announced last week that they would provide relief for those looking to purchase or reduce student loan debt. Before April 27th, 2017 a home buyer looking to purchase a home would have to count 1% of their student loan balances as a monthly payment and include that in their debt ratio regardless if the payment was a lower income based repayment. That was a huge hurdle for a lot of home buyers with student loan here in the Fenton Michigan area. With the changes released last week, we can now use whatever payment appears on the credit report! However, if the credit report reflects a $0 monthly payment because the loans are currently not in repayment, we still have to count 1% of the balances in the monthly payment.
As of today, FHA or Rural Development have not followed Fannie Mae’s lead, but hopefully will soon. VA loan qualification will still allow military and veteran home buyer’s to exclude student loan payments from their debt ratio if they are deferred for a minimum of 12 months from the date of closing. If a parent has been paying your student loan payment for your monthly for a minimum of 12 months, the monthly payment may be excluded from your debt to income ratio with proof of the 12 months of payments.
To help assist current homeowner’s with reducing student loan debt, Fannie Mae is allowing current homeowner’s to pull cash out of their homes to pay off student loans without the typical increased interest rate that comes along with a cash out refinance. The maximum loan that a borrower can have is 80% of their current homes value which must include their current mortgage loan balance, closing costs (if you do not pay them out of pocket or have the lender credit them) and student loans. With values on the rise, this may be a good opportunity for some current homeowner’s to payoff high interest student loans and deduct the interest on the new mortgage loan balance.