Student Loans are making it harder for Millennials to get mortgages.
The average millennial is finding it harder and harder to qualify for home loans as banks, and lenders are unsure as to how to factor in the growing ratio of federal student debt to the net worth.
Many students are participating in income-driven repayment plans for their student loans. The monthly payment is determined by family size and income. this payment is usually capped at a set rate, sometimes as low as 10%.
Underwriters have been unsure how to appropriately factor in the burden of debt.
According to a report from the US News and World Reports “the thresholds for FHA loans are 31 percent for front-end ratios and 43 percent for back end.”
One challenge lenders face when calculating the back-end ratio is determining how to include deferred student loan debt. Because these loans do not have a set monthly payment, lenders must estimate a monthly amount. This may not be accurate – especially if a borrower qualifies for a low income-driven repayment amount.”
Fannie Mae weighs in.
Payment calculations for student loans offer different rules compared to the standard practices banks and lenders have been using to determine mortgages.
Fannie Mae has made it clear by stating new guidelines concerning the monthly payment for income driven repayment plans for new home buyers with student loans.
These new rules will make it easier for student loans to navigate the qualifying process.
You can learn more about the impact of student loans on mortgage eligibility Here