Changes in mortgage rules could help you pay off your student loan quicker

Raise your hand if you are still paying off your student loan…most of us have hands raised…71%, in fact graduated from college with student loan debt and many are still paying it off. Last week I posted briefly on Twitter and Facebook – which I’d love you to follow me if you’re not already – about changes being made to mortgage lending guidelines that could help you pay off your student loans quicker and qualify for a mortgage easier. Since these new guidelines could help so many people I thought I’d write a post to help you understand the changes and what they mean for you.

So, let’s break this down. First of all, the new guidelines by Fannie Mae are designed to help in two scenarios: 1) Borrowers with student loan debt seeking to qualify for a mortgage; 2) Mortgage borrowers getting a cash-out refinance.

Here is what the new guidelines mean for these two different instances:

Scenario #1: Borrowers with student loan debt that are trying to qualify for a mortgage.

Often people trying to qualify for a mortgage to buy a home are not approved because they have too much outstanding debt, and in many cases that debt is largely comprised of student loan debt. The new guidelines allow me as a mortgage broker to exclude any debt that you have that is being paid by others, like in a co-sign situation or student loan debt that your parents might be paying for you.

Scenario #2: Using a cash-out refinance to pay off student loan debt.

It’s common for mortgage borrowers to take cash out of the equity they have in their home to pay off debt, such as student loan debt. When you take a cash-out refi you generally pay a higher interest rate, taking a ‘hit’ on the rate because you are taking out cash for your equity. Now, the new guidelines allow you to take cash out to pay off student loan debt without paying a higher ‘cash-out’ interest rate.

This is great news for so many people! In fact, I’ve already had the opportunity to refinance a client to get cash-out to pay off his student loan debt. If you think these new guidelines might help you, reach out and let me know; I’d love to go over your situation and discuss your options.



P.S. I’m a mortgage broker and owner of Pacific Financial Mortgage and Real Estate Inc. We are based in Southern California. I have a passion for helping families and first-time homeowners buy a home by simplifying and personalizing the whole experience. Give me call if I can help you!