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It's been one of the biggest hurdles to millennial homeownership: How can you make yourself appealing to a mortgage lender when you've got five- or even six-figure student-loan debt on your record?
It''s a catch 22: You get that college degree to help secure your future, but then the loans you take out to cover the price tag become the thing that prevents you from accomplishing your "adulting" goals — like, you know, buying a home.
Fannie Mae is making some efforts to alleviate that problem. The government mortgage giant, which guarantees about a third of the country's home loans, recently announced changes to its mortgage-lending policies, intending to help out would-be and even current homeowners with student loan debt. Here's what you need to know:
There's a student-loan cash-out refinance option. This is a loan option that allows you to refinance a mortgage and borrow above the outstanding balance so you have cash for paying down student loans — whether that's your own student loan, a parent loan, or a student loan you co-signed, reports the San Francisco Chronicle. Fannie Mae piloted the program last year with loan company SoFi and is now expanding the program to its other lenders.
Debt paid by others will be excluded in a debt-to-income ratio calculation. Got a car loan that your parents foot the bill for, or a student loan that your company is helping you pay down? Fannie Mae will now exclude that from your DTI, which can help you look more appealing to mortgage lenders.
Lenders will use student loan payment information found on your credit report. This change is specifically to benefit borrowers who have student loans with flexible payment options, such as those on an income-based repayment plan.
Previously, when assessing applicants, Fannie Mae would go with a higher monthly payment amount for those particular borrowers, even if what they were actually paying at the time was lower. The rationale behind the change, The New York Times reports, is that if such a lender were to end up paying higher payments later, it would be because they were making more money.
While the changes certainly stand to benefit younger wannabe homeowners, don't forget that there's still a lot more to prepping your finances for buying a home, including making sure you've got a strong credit score.