This week, Fannie Mae announced its newly expanded student loan cash-out refinance program and introduction of two new policies for homebuyers with student loan debt. Through these initiatives, the government-sponsored enterprise (GSE) aspires to assist hopeful (but previously unqualified) buyers with unresolved debt to transition into homeownership.
The added policies include:
- Debt may be paid by others: With the introduction of this policy, the borrower’s debt-to-income ratio can exclude non-mortgage debt, like credit cards and student loans, which have been paid by somebody other than the borrower for the previous 12 months.
- New student debt payment calculations: This addition permits lenders to accept student loan payment information on credit reports, which will significantly broaden a borrower’s eligibility.
- Student loan cash-out refinance expansion: Homeowners with student loan debt now have the flexibility to possibly refinance to a lower mortgage interest rate while paying off their high-interest student loans.
Together, the expanded refinance program and new student debt policies serve to counter the overwhelming limitations student loan debt has had on the nation’s housing market. In fact, according to Jonathan Lawless, VP of Customer Solutions at Fannie Mae, many potential homebuyers have been unable to get mortgage approved for their first home due to an unfavorable debt-to-income ratio, while their parents are dinged for paying for their education.
“We arrived at these product ideas after seeing the size of student loan debt, which is $1.4 trillion. But there’s another number to pay attention to—$8 trillion in home equity,” Lawless reported. “There is enough housing equity in California alone to pay off the student debt of the entire nation. We wanted to find a way to unlock that equity.”
With this new jumpstart for young homebuyers, industry experts are hopeful that mortgage applications will only continue to increase throughout the upcoming months. For more information about getting mortgage approved with student loan debt, or to learn more about home financing, contact one of our mortgage specialists today.