Although milliennials account for the largest homebuying group in the US today, a large number of them are having trouble purchasing a home due to personal debt.
The cost of education in the United States continues to rise, and those attending college are borrowing more money to attend their choice schools. Tuition costs are often so high that it takes graduates many years to repay their debts. Fortunately, Fannie Mae and Freddie Mac have introduced some significant changes to make exceptions for borrowers in debt from student loans and make purchasing a home a possiblity. Using debt-to-income ratio (DTI), a mortgage lender determines the amount of money for which a borrower qualifies. DTI compares a borrower’s monthly debt payments to their total monthly income. Fannie Mae, Freddie Mac and the FHA have recently changed how student loans are considered in qualifying DTI and the mortgage underwriting process. Some of these changes include:
Student loan cash-out refinance: This option allows high-interest student debt to be paid off while refinancing to a lower mortgage rate.
Debt paid by others: This option excludes from the borrower’s DTI the non-mortgage debt paid by someone else.
Student debt payment calculation: Lenders have the ability to accept student loan payment information on credit reports, increasing the borrower’s chances of being approved for a mortgage.
Graduated repayment plan: Mortgage payments start low and increase two years at a time to meet the rising income of a recent college graduate. With lower monthly payments, the DTI is reduced, which can help borrowers qualify for a loan.
For more information on purchasing a home with student loan debt, click here.