Fannie Mae Aims to Make It Easier for Student Loan Borrowers to Get a Mortgage

fannie mae

On April 25, 2017, Fannie Mae announced an expansion of its student loan cash-out refinance program. Additionally, the mortgage giant announced new policies to ease credit requirements on borrowers.

Fannie Mae already offers a mortgage refinance program aimed at tackling student loan debt. But they’ll also make changes to how mortgage lenders view student loan debt.

Ever-growing student loan debt is, in some cases, holding would-be homebuyers back from taking the plunge. So this can help many student loan borrowers who were held back by student loan debt, get into a house.

Student loan refinance program expansion

Last fall, Fannie Mae debuted a mortgage program in partnership with SoFi. The program provides a way to pay down student loans with a mortgage refinance.

The program allows homeowners to refinance a home mortgage at a lower rate and cash out. With the cash, it’s possible to pay down student loans. For those who worry about paying off their student loan and want a lower rate, this can provide a solution. It’s similar to refinancing student loan debt to a lower rate.

A mortgage refinance rate is usually lower than a student loan rate. Even by combining the two, you could come out ahead.

Right now, SoFi is the only partner offering this option. However, Fannie Mae expects to start working with new lenders, expanding the program so that more borrowers have access.

New credit requirements

Fannie Mae is also changing its credit eligibility requirements. This can make it easier for those with student loan debt to qualify for mortgages.

Borrowers can now have non-mortgage debt paid by others excluded from their debt-to-income (DTI) ratio. Credit cards, car loans, and student loans paid by someone else won’t count against the ratio when applying for a mortgage. If your parents are making payments on your car loan, it might not count in your DTI calculations.

The other new program allows lenders to consider positive student loan payment history. Information included on a credit report is eligible. With this information included, it can give a bump to some credit scores when it comes to qualifying for a mortgage.

“We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution,” said Jonathan Lawless, Vice President of Customer Solutions at Fannie Mae, in the press release. “These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers.”

How Fannie Mae can help

These updated credit guidelines could go a long way toward helping more buyers with student loan debt get into homes. Fannie Mae is a government-sponsored enterprise created by Congress (along with Freddie Mac). Fannie Mae buys mortgages from lenders, allowing them to free up their own portfolios to make more loans.

However, Fannie Mae only takes mortgages that meet certain guidelines. As a result, there are lenders that adhere to the sometimes-strict requirements put forth by Fannie Mae so they qualify.

Fannie Mae and Freddie Mac account for about 50 percent of the total mortgages out there, according to the Congressional Budget Office (CBO). If lenders want options to remain liquid, they need their loans to comply with expectations set forth by Fannie Mae and Freddie Mac.

With Fannie Mae loosening some of its guidelines, this could open the door for more homebuyers who were held back by student loans in the past.

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Published in Buy or Rent a Home, News & Policy, Student Loans