Talking Points
- For many of the 44 million Americans with student loan debt looking to buy a home, qualifying for a mortgage just got a bit easier. Housing giant Fannie Mae this week issued new guidelines about how lenders should evaluate mortgage applicants who have student loans — particularly borrowers on income-driven repayment plans.
- Under the new guidelines, lenders issuing Fannie Mae-backed mortgages can calculate your debt-to-income ratio using your monthly student loan payment on an income-driven repayment plan, Lawless says. Income-driven plans cap your monthly payments at a percentage of your income.
- Previously, lenders had to calculate a higher monthly student loan payment for mortgage applicants on income-driven repayment plans, Lawless says. That meant mortgage lenders were evaluating those borrowers based on a higher debt-to-income ratio than they actually had. At the time, Fannie Mae felt that lending to borrowers on an income-driven plan was riskier, Lawless says. “We’ve gotten to understand these programs better,” Lawless says, citing that better understanding as the reason for the policy change.
- Fannie Mae-backed lenders still have to calculate a monthly student loan payment to use in determining your debt-to-income ratio if you’re in a deferment or forbearance. That monthly amount will be 1 percent of your outstanding student loan balance or the amount needed to be on track to pay off the loan within the remaining loan term.