Fannie Mae has come to recognize the problem people are facing when they’d like to buy a house but they’re hemmed in by tens of thousands of dollars of student loan debt. First, in calculating loan applicant’s debt-to-income ratio, the company is no longer factoring in debt that’s being paid by someone else. That means, for home buyers whose parents are making payments on their student debt, those payments won’t count against their DTI calculation. Other debt payments are also being taken out of the calculation if someone else is making the payments. So, if loan applicants are getting their car payments taken care of by someone else, those payments are taken out of their DTI calculation, too.
Second, if borrowers are making student loan payments that are smaller than what their original repayment agreement calls for, those smaller payments are factored into DTI calculation rather than the original payment amount. That means if the borrower is paying $100 a month rather than the original $500 a month that the repayment agreement called for, only the $100 a month is factored into DTI. Why might borrowers be paying less than the original amount? Because a number of public entities have created programs to help people who are faced with making student loan payments but aren’t making much money. They idea is, once they start making more money, they can start paying their original payment amount. Prior to this change, Fannie recognized only the original payment terms when calculating DTI.
Third, existing homeowners can get improved repayment terms on cash-out refinancing if the loan is for paying down student debt. This change is really for parents who want to help their kids retire their debt or for people who already own a home and want to get rid of their student debt.
All three of the changes are already in effect, so if you have homebuyers who tried to get a home mortgage loan a few months ago and couldn’t because their DTI was too high, there’s a real chance they can reapply and get different results. That’s something to let your customers know about.
But there is more change coming, too. At the end of July, Fannie Mae’s maximum allowable DTI will rise to 50 percent from 45 percent. Once that change takes effect, loan applicants who have really struggled to meet DTI requirements now have an even better chance of getting a loan approved.
The changes are detailed in the latest Voice for Real Estate news video from NAR. Also covered: Efforts by NAR and the federal government to increase the national homeownership rate, which has been stuck at a 50-year low since the downturn, and the increasing interest among foreign investors in smaller commercial properties in markets outside the big metro areas.