There’s no question that our country has more cumulative student debt than at any time in history, but a potential home buyer should never view this burden as a financial stumbling block to a new home purchase. As one example, the Federal National Mortgage Association, commonly referred to as Fannie Mae, has taken significant steps in the past year to make it easier for folks with large student loan debts to qualify for home loans.
If you or someone you know has found it difficult to purchase a home in the past, it may be time to revisit those plans. Fannie Mae and its government-sponsored companion program, Freddie Mac, already have flexible ways to help potential buyers. Now Fannie is simplifying the formula it uses for home purchase borrowers with student debt.
First, here’s some background information. Lenders qualify borrowers based on their debt ratios … basically comparing how much a household earns each month and how much it is committed to pay for its car loans, credit cards, etc. Traditionally, 1% of a person’s outstanding student loan balance had to be considered as their minimum monthly payment. For many folks with $50,000 or more in debt who otherwise earned a good living and had manageable monthly expenses, this was enough to deny the loan due excessive debt-to-income ratio. Now, lenders are permitted more flexibility in using standard credit reports to evaluate a person’s financial viability.
Another big benefit for potential home buyers is tied to who actually pays the bills. As one example, previously a student loan payment that was in a parent’s name, but paid for by the adult child, was applied against all parties. Now, with documentation, lenders are able to attribute payments specifically to the responsible party and offer an exclusion to others. It’s another way Fannie Mae is loosening the restrictions people encounter in buying a home.
This Team Move OVM Financial blog has even more information about the many programs and policies from Fannie Mae, Freddie Mac and the VA, and how individuals can benefit from them. You can also contact Sanford’s Team Move OVM Financial office at 919-777-0114 to get answers to any questions you may have.