For Kentucky Home Buyers using Fannie Mae or Conventional Loans that have student loans reporting a payment on the credit report, we can now use the payment reporting on the credit report even if it is income-based repayment plan. FHA and USDA still will use 1% if the student loans are IBR, but Fannie Mae now does allow us to take the payment listed on credit report. This will let a lot of Kentucky Homebuyers that have a lot of student loans left to pay qualify for a mortgage loan now. This is very good news.
Kentucky Mortgage Guidelines Changes on Student Loans for Conventional Mortgage Fannie Mae Mortgage loans.
Recent changes to Fannie Mae and Freddie Mac guidelines have made it easier for some, but not all with student loan debt to still qualify for home mortgage loans.
Both Fannie and Freddie have set underwriting guidelines that if lenders follow, makes the selling of loans to Fannie Mae and Freddie Mac much easier.
Student Loans. How do lenders calculate?
Fannie Mae Loans:
Freddie Mac Loans:
USDA Rural Housing Loans:
VA Home Loans:
- If the credit report lists a payment amount, then the listed amount can be used for qualifying purposes
If the credit reports lists a $0 payment or no payment at all, either of the following calculations can be used
- o 1% of the outstanding student loan balance; OR
- o A calculated payment that will fully amortize the loan based on the loan repayment terms
- DU Approval only
- Standard Cash-Out LTV/CLTV applies
- At least one student loan must be paid off
- Only student loans for which a borrower is personally obligated can be paid off through the transaction
- No partial payments are allowed; any student loan included in the Cash-Out refinance must be paid off in full
- Loan proceeds must be paid directly to the student loan servicer at closing
- Maximum cash back to borrower is the lesser of 2% or $2000
Only the following additional types of debts may be paid off with proceeds
- o Current first lien mortgage or HELOC
- o Purchase money seconds
- o PACE loans or other debt incurred solely for energy efficient improvements
- Loan must be delivered with Special Feature Code 841