Think you cannot buy due to Student Loan Debt, think again!
Fannie Mae is preparing to raise the debt to income ratio requirement by July 29, 2017! High debt payments are the number one reason people are declined when applying for a loan. The increase from 45% to 50% could open the doors to home-ownership for a large group of millennials who have been trying to enter the market with little success due to high student loan debt.
The DTI (debt to income ratio) is the total amount of monthly payments a borrower is carrying versus the amount of money they earn. The types of things calculated in the DTI include credit card payments, student loans, auto loans and leases and mortgages.
The US Labor Department reported early in 2017 that the unemployment rate rose slightly by one-tenth of a percentage point to 4.8 percent and wages increased by only three cents. This slack in the labor market hasn’t helped new home purchases, however, the change to DTI will potentially open the door to home-ownership for a lot of millennials and other potential home buyers whose wages haven’t increased, but are still carrying significant debt load, especially in student loans.
According to David Holding, Vice President of Production and Capital Markets at Mortgage Equity Partners, “The largest barrier to home ownership in recent years has been the tightening of credit guidelines. With the high cost of education, many potential buyers are missing the mark on conventional loans due to restrictive debt ratios. Even though their credit profile is excellent, they are pigeon holed into a program that is traditionally reserved for less than perfect credit due only to their debt ratio. This upcoming change will allow many of these borrowers to qualify for traditional financing and reduce their up front and monthly costs. We welcome this change and look forward to providing lower cost lending options for more potential borrowers.”
In the past, borrowers that were loaded down with monthly debt were at a higher statistical risk of falling behind on their mortgage payments. According to recent research done by Fannie Mae, this is not always true of millennials many of whom are very credit worthy with good credit scores and payment histories, they are just burdened with student loan debt. If they have been making their payments every month Fannie Mae’s position is that they are comfortable looking at other factors in their credit profiles that increase their chances of being approved for a mortgage.
While every applicant is different, you should contact a professional loan officer to discuss to your situation to see how these changes can benefit you specifically.