Bay Equity Home Loans Newsletter
Bay Equity Home Loans Newsletter

Fannie Mae Student Debt Solutions

Bay Equity Home Loans Newsletter

Loan-backing giant Fannie Mae issued three new policy changes in May, hoping to encourage more mortgages for Americans with student loan debt.

Two of the programs aim to mitigate student debt’s effect on credit scores and debt-to-income (DTI) ratios. The third program provides refinance options for borrowers who have already purchased homes.

Check with your trusted Bay Equity Home Loans loan officer today to find out if you qualify.

Here’s a quick synopsis:


Student Loan Payment Calculation - Previously, lenders had to apply 1 percent of the total loan balance toward the borrower’s monthly DTI ratio, regardless of the actual monthly payment amount. DTI ratio is monthly expenditures (i.e. rent, student loan payments) relative to monthly earnings (i.e. your income).

To put that in perspective, a borrower earning $50,000 a year with $60,000 in student loans had $600 applied to his or her DTI. But for borrowers on income-driven plans, monthly payments can be as little as $161.

If the lower amount appears on the credit report, lenders may use it for qualifying purposes.

Most lenders have strict limits for DTI ratios, and that $439 difference could easily be the difference between qualifying for a mortgage or not!

Debts Paid by Others - Non-mortgage debts – such as auto loans, credit cards and student loans, which can be documented as satisfactorily paid by another party for the past 12 months, can be excluded from the DTI ratio.

Student Loan Cash-out Refinance – Allows current homeowners an alternative way to pay off one or more high-interest student loans with a cash-out refinance, potentially reducing their monthly debt payments.

When all requirements have been met, the price adjustment that applies to cash-out refinance transactions will be waived.

Parents who co-sign a student loan may also be eligible for the new programs.

There are 44 million Americans with a combined student debt of $1.4 trillion, the largest chunk of debt in the country except for mortgage loans.

Recent college graduates carry an average of $34,000 of student debt each, providing one of the largest obstacles on the road to homeownership.

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Equal Housing Lender. This is not a commitment to lend or extend credit. Restrictions may apply. Rates may not be available at time of application. Information and/or data are subject to change without notice. All loans are subject to credit approval. Not all loans or products are available in all states. Bay Equity LLC, 28 Liberty Ship Way Suite 2800, Sausalito, CA 94965; NMLS ID#76988. Arizona Mortgage Banker License #0910340; click here: www.nmlsconsumeraccess.org/EntityDetails.aspx/COMPANY/76988