Homebuyers, owners with student debt get big break
The nation’s largest provider of mortgage money has eased its borrowing rules, allowing banks to create more home loans for first-time buyers and current owners who are struggling with student debt.
Q. Is it true that banks will no longer consider a loan applicant’s student-loan debt when deciding whether to approve or reject a mortgage?
A. It’s not true, despite some misleading recent media reports and broadcast commercials to the contrary.
However, it is true that Fannie Mae, the largest provider of mortgage funds in the nation, made some key changes about a month ago that will make it easier for those saddled with student-loan debt to get a home loan in the future — and perhaps even help their parents, too.
Fannie Mae, a quasi-government agency, doesn’t make loans directly to borrowers. Instead, it buys mortgages that independent banks make to consumers, pools those loans with others that it purchases and then sells shares in those pools to private investors.
By selling their loans to Fannie, banks get a lump sum of cash that they can use to issue even more mortgages to future borrowers. Roughly half of all outstanding home loans in the U.S. today are owned by Fannie Mae and a similar company, Freddie Mac.
About 43 million Americans owe a combined $1.26 trillion in student-loan debt. Monthly payments on those loans make it difficult for a first-time buyer to save for a down payment on a home, much less gain a lender’s approval for a new mortgage.
A key change in Fannie Mae’s new policy involves the 6.5 million studentloan borrowers who have reduced their monthly payments by stretching them out over a longer period through the government’s income-driven repayment program, commonly referred to as IDR.
Fannie’s revamped rules allow banks to consider the student borrower’s lower IDR monthly payment (rather than the previously higher one) when reviewing a mortgage application, even if the longterm cost of the educational loan will stay the same or even go up. The change makes it easier for applicants to qualify for a mortgage because it essentially lowers the bank’s loan-underwriting requirements.
Another 8.5 million Americans could be helped by Fannie’s decision to cut the cost of a current homeowner’s “cash-out” refinancing, provided that the extra money that’s taken based on the owner’s equity will be used to pay off student debt. That’s good news for grads who have been able to swing the purchase of a home over the past few years and now want to refinance to repay their educational loans, as well as for parents who want to refinance to pay their kids’ college debt.
A little-noticed benefit of Fannie Mae’s policy change will also aid current or former students who get help to meet ongoing nonmortgage debt, such as creditcard bills or car payments, from their parents, grandparents or others. Lending institutions that sell their loans to Fannie will no longer need to consider a student or grad’s nonmortgage debt when considering a home-loan application, provided that the payments have been made promptly for each of the previous 12 months.
To be sure, the new rules are complicated, and not every student-loan debtor will qualify. Call a few local lenders and mortgage brokers for help. You can also contact Fannie Mae’s Resource Center at 800-232-6643 or visit www.fanniemae.com.
REAL ESTATE TRIVIA
A study performed by Consumer Reports magazine last year found that U.S. homeowners had a combined $8.37 trillion in mortgage debt. But studentloan debt was second, at $1.26 trillion — roughly twice the amount that Americans owed on credit cards.
Q. I recently retired from the military after doing two stints in Afghanistan. I would like to use my Veterans Administration home-loan benefits to buy
a duplex, where I would live in one unit and rent out the other. Does the VA’s loan program include duplexes, or is it limited to only single-family homes?
A. The VA will guarantee home loans for duplexes, triplexes and four-unit apartment buildings, provided the veteran makes one of the units his or her primary residence. Loan limits vary from one part of the nation to the next, based largely on a county’s average property prices.
Call the VA Loan Center at 877-8273702 for more information, or visit www.va.gov. But before you do, please know that I and my readers give thanks for your service to our nation.
My wife and I own our home. We would like to sell it and move into a retirement community, but we don’t have a lot of equity in our current house, and the net proceeds from the sale would leave us about $3,500 short of the down payment and closing costs on the retirement home we like. We have heard that the Social Security Administration can provide us with a one-year advance payment on our monthly benefits, which would be more than enough to cover the cost of buying the new place. How do we apply?
A. You can apply for an advance at your nearest Social Security office, but it’s likely that your request will be rejected.
The federal government generally limits advance payments to folks who are facing what it defines as a “financial emergency.” According to a Social Security spokesperson, the program is for those who “need money right away due to a threat to health or safety, such as not enough money for food, clothing, shelter or medical care.”
You and your wife already own a home, and your four-page letter suggests that neither of you is hungry or is facing big medical bills. That likely means that you and your spouse probably will not qualify for a Social Security advance payment.