Government-backed mortgage servicer Fannie Mae, which is the number one provider of home loans in the U.S., has altered its underwriting requirements in order to make it easier for would-be home buyers saddled with student debt to be able to qualify for a loan.
Fannie Mae said this month it’s no longer factoring in debt paid by someone else when it comes to calculating borrowers’ debt-to-income ratio, which is one of the main items it looks at along with things like income, employment and credit scores. What this means is that if someone’s student debt or car payments are being paid off by someone else (such as their parents), these debts will not be factored into their debt-to-income ratio calculation.
However, there’s a caveat – those who’re making student loan repayments that are smaller than their original repayment agreement will still see their smaller payments being factored into the equation. RealtorMag reports that there are a number of programs established by public bodies designed to help those with student loan payments who aren’t making much money. Once these individuals can afford to pay more, they can start paying their original payment amount. Before this change, Fannie Mae would only recognize the original payment terms in its calculations.
Also, existing homeowners are now eligible to get improved repayment terms on a cash-out refinancing of their home, if the loan is to be used for paying off student debts. In addition, Fannie Mae said earlier this month that its maximum allowable debt-to-income ration will increase from 45 percent to 50 percent at the end of July.
Fannie Mae said that once these changes take effect, previous mortgage applicants who did not meet its debt-to-income ratio requirements can once again reapply for a loan with a greater chance of success.