In Home Loans

Now You Can Graduate to Own a Home Even With a Student Loan

The statistics are pretty frightening. Americans owe over $1.4 trillion in student loan debt and that’s spread out among approximately 44 million borrowers. And last year, the average Class of 2016 graduate had over $37,000 in student loan debt, up 6% over the previous year. To a lot of people with outstanding student loans, it seems like home ownership is something they have to put on the back burner or dismiss altogether as unrealistic.

But there are options that may make homeownership possible now. For instance, the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, one of the largest funder/backer of 30-year fixed rate mortgages, recently announced a number of significant changes that can positively impact those who have student loans.

You’ll Owe a Debt of Gratitude: New Guidelines for Borrowers with Student Loans

The Fannie Mae program changes help borrowers with student loans in two key ways:

  1. It’s now easier to qualify for a mortgage with student loans
  2. If you already have a mortgage, you can refinance and roll student debt into a new loan with a lower rate

More Accurate Reporting Gives You Credit for Actual Payments

Fannie Mae has introduced new student debt reporting that may positively impact your home loan qualification. Before the new guidelines were introduced, your credit report probably didn’t include how much your monthly student loan payment actually was. As a result, the amount estimated was a larger percentage of the total amount owed which usually meant it was significantly more than what you actually paid and thereby potentially affecting your ability to get a loan.

Now, even if your monthly payment amount is not included on the credit report, a lender can use either 1% of the outstanding student loan balance, or a calculated payment that amortizes the loan based on the documented loan repayment terms. The bottom line is that a borrower with student debt is in a much better position than previously to get a home loan.

Receive a Benefit if Student Loans Paid as Gift

Another significant change introduced by Fannie Mae has to do with other people paying your student loan debt. Previously, even if another party such as a relative, friend or an employer was paying your student loan debt, the debt still impacted your credit report. Now, if a lender receives documents that show the debt has been paid by another party for the past 12 months, the student loan debt is no longer included in the debt-to-income ratio used to calculate eligibility for a loan.

Use Home Equity to Pay Off Your Student Debt

Fannie Mae has also introduced a student loan cash-out refinance feature. This cost-effective alternative allows you use your existing home equity to pay off student loan debt. This new update gives borrowers with student debt the opportunity to pay off one of more of their student loans by refinancing their mortgage and that their equity qualifies them for to reduce their monthly debt payments.

Considering that according to Federal Reserve statistics, the average monthly student loan payment for borrowers aged 20 to 30 years is $351, any avenue that reduces their monthly obligation is welcome.

You’re Not Alone with Your Student Loan

PrimeLending will work with you to find solutions that fit. We have options for borrowers with student loans that can help them lower their monthly payments and make it possible to get a loan even with student debt. Our loan officers will analyze your individual financial situation and factor that in to find you the best avenue to address your specific home ownership goals.

Student debt doesn’t have to be an obstacle to home ownership. There are ways to move past the debt so your aspirations are possible now. If you have student loan debt, contact a PrimeLending loan officer to learn what your options are.

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