Changes to how student loan debt is treated by government-backed mortgage entity Fannie Mae could benefit homeowners and homebuyers alike.
Fannie Mae has announced two changes that affect homebuyers:
- Those who participate in federal reduced-payment plans will have their actual payments taken into account when calculating a debt-to-income ratio, rather than the maximum payment amount. The idea is that if the required payment rises, it’s responding to a rise in income. There are about 5 million borrowers who participate in reduced payment plans.
- Nonmortgage debts paid by another party for at least 12 months won’t be included in calculating a debt-to-income ratio. For example, if monthly student loan payments are covered by a parent, that amount won’t be included in the borrower’s DTI.
Fannie Mae is also expanding a program that makes it less expensive to retire student loan debt using home equity. Under the program, the fees typically associated with cash-out refinancing are waived if the funds go toward student loans, giving borrowers rates lower than most student loans. Cosigners of student loans can also take advantage of this program.