How Do Fannie Mae’s Recent Changes Affect Those With Student Debt?

If you have a student loan or you are a cosigner on one, I have some good news for you.

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Fannie Mae, the nation's largest underwriter of mortgages, recently introduced three new rules that will affect those with student debt.

These new rules can make it easier to get a mortgage, and they can make it easier to pay off your (or your kids’) student loans.

The first change is for those on income-based repayment plans, where having a high debt-to-income ratio is the No. 1 reason for not being approved for a mortgage.

Fannie Mae previously used a very conservative 1% of the total loan instead of the actual monthly payment. This can drastically lower your debt-to-income ratio and give you a much better chance of qualifying for a mortgage.

Some folks are lucky enough to have their student debt paid by their parents, or even by their employer. The thing is, Fannie Mae didn't take this into account when calculating the debt-to-income ratio. That's the second new change.

If you can qualify for a mortgage right now, you definitely should.

If your employer or your parents have been paying off your student debt and you can show evidence of this for the past 12 months, then this debt won’t be counted in your debt-to-income ratio. This makes it more likely you will qualify for a mortgage.

If you can qualify for a mortgage right now, you definitely should. Rates are still at a historic low, and lots of great houses have recently come on the (area) market.

Fannie Mae also makes it possible to refinance your mortgage for more than the value of your home. Normally, there is a 0.25% fee that applies to any cash you take out in this way.
The third big change is that Fannie Mae will now waive that fee when you use this cash to pay off a student loan.

This applies whether the loan is yours, or you're a cosigner. If the mortgage rate is significantly lower than the student loan rate, it can make sense to refinance in this way; and, the new rule makes it cheaper to do so.

If you need help understanding these new guidelines to see whether they’re right for you, or you have questions about putting them into practice, give me a call or send me an email. I’ll be glad to help.

3 Things Every First-Time Homebuyer Should Know

Buying your first home can be an incredibly exciting time. However, it requires a huge commitment and a sizable investment.

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I want to share my three top tips to help first-time homebuyers protect themselves during this crucial period:

1. Know what you can afford

Your mortgage is only a part of what you will need to pay when you buy a home. Homeownership comes with plenty of other expenses, including closing costs, taxes, property insurance, maintenance costs, and homeowner association fees.

Once you have a clear idea of how much all of these items will cost, you can compare it to your current monthly expenses. Then you can figure out the kind of home you can honestly afford without getting carried away and without getting bogged down in debt.

2. Choose your lender wisely

Choosing a lender is not something you should base only on the lowest rate. A competent and trustworthy lender will offer you advice on how to improve your credit and also help you take advantage of special homebuyer programs that might benefit you.

But how do you find the right lender specifically for you? It's often best to get recommendations from friends who have already worked with a lender or from a real estate agent you trust.

An inspection will cost about $300, but it can save you thousands.

3. Don't overlook the details

There are many details that go into buying a home, and missing any of them can be a costly mistake. I always advise buyers to get a professional inspection done on their home, separate from the appraisal. An inspection will set you back about $300, but it can save you thousands of dollars down the line, and it can even prevent you from making a decision to buy a home that you would later regret.

A second example is understanding the fine print in the various contracts you will be signing. If there's anything that isn't clear to you, talk to your real estate agent and have it spelled out.

The process of buying a home can be intimidating, and that's why professional real estate agents are there to help. These three quick tips are only the start of the things you need to watch out for when buying your first home.

If you need more advice or you are ready to start looking for a home, give me a call or send me an email. I love working with first-time homebuyers, and I can help you get your perfect new home with minimum hassle.

You Don’t Need a Down Payment

What's the biggest obstacle to homeownership? According to a recent survey, "saving enough for a down payment" comes at the top of the list.

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Down payments. A whopping 55% of prospective homebuyers cited this as their main stumbling block.

And with the continuing growth of home prices, things aren't getting any easier. In fact, homeownership rates reached a 20-year low last November.

It wasn't always like this.

A decade ago, many lenders were offering easy, no-money-down mortgages.

However, after the financial crisis, mortgage standards have become more restrictive. A typical mortgage now requires a 20% down payment.

Here's the good news.

If you have decent credit and a steady income, you might be qualified for a number of specialized programs that require no or very little down payment. Here are a few of the top options.

First, there's the USDA loan, which is valid for homes in certain regions, such as rural and suburban areas.

55% cited the lack of a down payment as their main stumbling block.

With zero money down and lenient credit requirements, the USDA loan can be a great choice for many homeowners.

Second, there’s the VA loan, which you can apply for if you or your spouse served in a branch of the military.

It's possibly the most generous zero-money-down mortgage because of low interest rates and low closing costs.

Third, there's the FHA loan. It does require a 3.5% down payment — still drastically more achievable than the 20% required for a conventional mortgage.

Finally, there are a number credit unions and first-time homebuyer programs that might apply to your particular situation.

There’s one important thing you should know. 

If you get one of these no-money-down mortgages, chances are good you will be required to pay private mortgage insurance, which can drive up your monthly payments.

Fortunately, private mortgage insurance will disappear after your mortgage balance is under 80%. Also, the money you do pay will be tax deductible in most cases.

In short, there are lots of options to make owning a home a reality for you, even if you haven't saved up tens of thousands of dollars.

If you need more advice on getting a no-money-down loan, give me a call. I can put you in touch with some experienced Southern Utah area lenders who can answer your questions and help get you started.