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Student Loans Now Less of a Problem for New Home Buyers

By W. Todd Galde

Fannie Mae Student Loan Guideline Change


A few weeks ago Fannie Mae implemented new guidance for the qualifying of student loans that will undoubtedly help get more borrowers get approved to buy a home!


Until recently, many student loans that were not yet in the repayment phase, or with a current payment of $0 were qualified at 1% of the loan balance – which routinely caused DTI’s to be pushed above the allowable thresholds. For example, a $25,000 student loan with payments deferred for several years would have to show a $250/month payment in the past. This undoubtedly affects the debt-to-income ratio of the buyer.


Following Fannie’s recent clarification, fewer student loan situations will require the use of a higher payment than what is currently required.


Under the new guideline changes, if a monthly student loan payment is provided on the credit report, the lender may use that amount for qualifying purposes... OR...


If the credit report does not provide a monthly payment for the student loan, or if the credit report shows $0 as the monthly payment, the lender must determine the qualifying monthly payment using one of the options below.


  1. If the lender obtains documentation to evidence the actual monthly payment is $0, the lender may qualify the borrower with the $0 payment as long as the $0 payment is associated with an income-driven repayment plan.
  2. For deferred student loans, or ones in forbearance, the lender may calculate
    1. a payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment), or
    2. a fully amortizing payment using the documented loan repayment terms.

This is great news for young millenial buyers who have entered the work force and looking to purchase their first home.


Advising smart financing,


Todd Galde