For many of the 44 million Americans with student loans, better mortgage options may now be available. Fannie Mae, the government-sponsored enterprise that heavily influences the mortgage industry, has just introduced new rules that make it easier for those with student loans to qualify for a mortgage, obtain more favorable terms or pay down their student loans. Here are highlights regarding some of the new changes.
- Fannie Mae has changed the manner in which the monthly obligations on student loans are figured into the total debt-to-income ratio (DTI) that impacts a borrower’s mortgage qualification. For example, an income-based repayment can now be used to calculate the DTI. This will result in greater borrowing power for individuals with student loans.
- Homeowners who have at least 20 percent equity in their homes may qualify for a cash-out refinance to pay off one or more student loans.
- Borrowers will have an opportunity to convert higher interest rate student debt to a lower interest rate, potentially reducing monthly debt payments.
- When at least one student loan is paid off directly to its loan servicer and delivered to Fannie Mae, the loan is treated as a limited cash-out refinance and is not subject to the higher rates associated with cash-out refinances.
Fannie Mae does not lend to consumers, meaning you will need to use a lender who works with them to access these new terms. As a direct Fannie Mae lender, Draper and Kramer Mortgage Corp. offers their products without any additional restrictions. For specifics on these changes and to learn what you qualify for, please contact your mortgage professional.