Relaxed student loan guidelines makes qualifying easier

Student Loans and Mortgage Approval. What are the guidelines?

Minneapolis, MN: Student loan debt is at an all time high, and has been noted as a contributing factor to why may people have been unable to purchase a home, especially first time home buyers.

Recent changes to Fannie Mae and Freddie Mac guidelines have made it easier for some, but not all with student loan debt to still qualify for home mortgage loans.

Fannie Mae and Freddie Mac do not do home loans. Rather they buy loans from lenders after that fact. Both Fannie and Freddie have set underwriting guidelines that if lenders follow, makes the selling of loans to Fannie Mae and Freddie Mac much easier.  While the number moves, at any given time, Fannie Mae and Freddie Mac control +/- about 60% of all home loans.

Student Loans. How do lenders calculate?

Student loans can be in active repayment, some sort of reduced repayment (which is typically an income based repayment), or completely deferred.  While a student loan may be deferred for the next year or two, your mortgage loan is typically a 30-year loan. It only makes sense that lenders take current or future student loan payments into consideration when calculating debt ratios and affordability.
To avoid confusion, I’ll just talk about current guidelines for how lenders currently deal with your student loan debt for debt-to-income ratio purposes.
These guidelines are current as of this article (Dec 1, 2017 (updated)

FHA Loans:

FHA loans must use the greater of 1% of the outstanding balance, or the payment listed on the credit report, unless you can document the payment is a fully amortizing payment. No income based repayment, graduated payments, or interest only payments allow

Fannie Mae Loans:

For deferred loans, must use 1% of the outstanding balance. For loans currently in repayment, use the payment listed on the credit report. If payment is listed as $0.00, but $0.00 is an active income based repayment, we must verify with the student loan company that $0.00 is the income based repayment.

Freddie Mac Loans:

For loans in repayment, use the amount listed on the credit report, or at least .50% (1/2%) of the outstanding balance, whichever is greater.
For deferred loans, must use the amount listed on the credit report, or 1% of the outstanding balance as reported on the credit report.

USDA Rural Housing Loans:

For USDA loans, if the loan is deferred, income based payment, graduated payment, or interest only payment, must use the greater of 1% of the outstanding balance, or the amount listed on the credit report.

VA Home Loans:

For VA loans, if payment is deferred at least 12 months past the loan closing date, no payment need be listed.
If payment will begin within 12 months of closing, use the payment calculated based on:
  a) 5% of the outstanding balance divided by 12
  b) The payment listed on the credit report if the payment is higher than calculated under (a).
  or
If payment on credit report is less than (a), a letter, dated within the last 60-days directly from the student loan company that reflects the actual loan terms and payment information is required to use the smaller payment.

More people with student loans now qualify

These updated guidelines primarily help those currently in repayment, but with income based, graduated payment, and interest only payment student loans obtain conventional loans.
 Regardless of your student loan status, I always suggest that people never assume you can’t buy a home.  Always talk with a professional licensed Mortgage Loan Officer to get the facts regarding any financing options.  I offer all this loan option and more for properties in Minnesota, Wisconsin, and South Dakota and can be reached at (651) 552-3681, or www.MortgagesUnlimited.biz


Percentage of First time home buyers drop

First- time home buyers aren’t buying homes like they used to.

rent-versus-buyThe share of houses bought by first-time owners is at its lowest level in nearly three decades and down sharply from 2013, according to a survey out Monday from the National Association of Realtors.

Just 33 percent of home purchases this year have been by first-time buyers, the trade group said, down from 38 percent last year and well below the long- term average of 40 percent, the trade group said.

According to NAR chief economist Lawrence Yun, would-be buyers are struggling with higher prices, tight lending procedures and a still unsteady job market. Their absence, however, is slowing the overall recovery. NAR predicts home sales will fall this year for the first time since 2010.

As a Loan Officer here in Minnesota, I cry foul… Yes, maybe the percentage of first time home buyers is down, but it appears the home buyer market reality doesn’t match the perception.  Home prices are incredibly affordable all across MN, WI, and SD. Mortgage programs and lending may require a few more documents, but it is not really difficult at all (unless you have bad credit).

I heard again this morning on a national news program that you need 20% down payment.  Really?  Since when?  There are many first time home buyer programs in MN that can be combined with down payment assistance programs, so you only need a small amount for down payment.  FHA loans are only 3.5% down payment, and Fannie Mae just announced they are coming out with a 3% down program shortly.

I keep reading many articles about student loans keeping people from buying homes, yet I approve people all day long with student loans.vaflag2

Maybe there is a changing market, but the reality is that a home of your own is still the American Dream, and there is no reason for most people not to buy a home.