First Time Home Buyers with Student Loan Debt

There are some new guidelines effective September 23, 2019 for First Time Home Buyers with Student Loan Debt.  Freddie Mac will now requires us to count either your Student Loan payment, OR .5% of the balance, which ever is higher  This is a change from the current guideline that allows us to consider the payment that is reported to the Credit Bureau.  We haven’t been able to count a $0 payment, but if you were on an IBR schedule with a payment of $21 on a $22,000 loan, we could count the $21 in your debt to income calculation.  Beginning in January, with that SAME person, we will be required to count $110.

Fannie Mae allows us to count the ZERO payment IBR or the ZERO payment Deferred student loan.

USDA Home Loans now require .5% just like Freddie Mac.

Will it keep First Time Home Buyers with Student Loan Debt, out of the market?  No.  These facts are sourced from the US Census Bureau, NAR 2019 Home Buyers and Sellers Generational Trends Report and a recent GO BankingRates survey.

• The home ownership rate has remained between 63% and 64% for the past 3 years, which is historically low
• Average rents have increased approximately 30% over the past 4 years
• Buyers 36 years and younger were the largest share of home buyers for the past 4 years, most recently at 34%
• 98% of buyers 36 and younger financed their homes, and 56% of them used a conventional loan
• 23% of buyers 36 years and younger reported that saving for a down payment was the most difficult step in the home buying process
• 69% of Americans have less than $1,000 in savings
• 46% of buyers 36 years and younger are First Time Home Buyers with student loan debt with a median loan balance of $25,000

Programs Available For First Time Home Buyers with Student Loan Debt

So many of our borrowers are First Time Home Buyers with Student Loan Debt.  The BEST program for those who have Student Loan payments that are in IBR or IBC status is a Fannie Mae, Conventional Loan.  Unlike FHA Loans, where we have to count 1% of the balance against you as a monthly debt, with the Fannie Programs we can qualify you with the payment showing on the credit report!

With recent changes at Fannie Mae and Freddie Mac that now allow higher DTI’s (50.0% for Fannie and 50.49% for Freddie), and an increasing awareness about low down payment lending solutions like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs, there are terrific options for buyers who don’t have a lot of money saved or who have larger debts, including Student Loan Debt.  In fact, we are speaking with folks DAILY who have more than $50,000 in Student Loan Debt.  Just 12 months ago, there were very few options for these potential home owners.

Today, if you have student loan debt, we can approve you with the low variable IBR payment on those Student Loans.  You will only need 3% for your down payment, and you can get a gift for that down payment. Again, if you can come up with the 3% down payment, we can go to 50% on a DTI!  That’s huge!

If you have a credit score above 640, we might be able to get you approved with NC Housing.  The beauty with those programs is that they can help with down payment, with closing costs and you can get a mortgage tax credit each year yo live in the house!  The PMI rates for these programs through NC Housing are the lowest premiums we can offer!  Unfortunately, the current DTI cap for NC Housing is 43%, the rates are slightly higher, so there’s a trade-off.  These are programs that are offered by a select group of Lenders in the State.

PMI Options For First Time Home Buyers with Student Loan Debt

Unlike Government loans where the PMI stays on the loan as long as you live there, meaning even if you have 20% equity in the house you pay an insurance premium.  With the Conventional Loans through Fannie and Freddie, PMI will drop off on these loans after you meet the equity requirements!

PMI gets more expensive as your credit score is lower.  It’s based upon risk.  As PMI for someone with 620 credit score could cost you $375 a month, having a higher credit score is critical to qualifying for the Fannie / Freddie programs.  The PMI Rate we found for a 97% NC Housing Fannie Mae Loan for someone with a 700 credit score is $130.  READ:  Get your scores up!  We can help!

For those purchasing a home in a Disaster Area, after Hurricane Matthews, there are reduced PMI rates available through October 2019.

MANY people want to know of a way to completely avoid PMI.  The truth is that for 60 years, PMI has helped American’s grow our home ownership rate by helping families get into homes sooner.  As mentioned the new programs only require a 3% down payment!  Fannie and Freddie can offer these programs because PMI is protecting taxpayers and the government from mortgage credit risk.

PMI offers unparalleled risk protection to the Fannie and Freddie. By design, PMI promotes stability because coverage agreements with lenders require full underwriting and it stands in front of the government in a so-called “first-loss position” (different from most other forms of credit enhancement). Every dollar paid by PMI to cover losses is a dollar the government — and therefore taxpayers — don’t have to pay.

The Urban Institute recently found Conventional loans with PMI have a 40 percent lower loss-severity rate than loans without PMI. It also noted that for nearly 20 years, conventional loans with PMI have revealed lower loss severity each origination year. Since both Fannie and Freddie entered conservatorship, the PMI industry has covered more than $50 billion in claims, which represents 100 percent of valid claims since the financial crisis — 97 percent paid in cash and the remainder due over time.

The main benefit of Mortgage Insurance is protection for the lender.  PMI is the REASON Fannie and Freddie can offer these special programs for First Time Home Buyers with Student Loan Debt.  Private Mortgage Insurance, or PMI, is required on all traditional conventional mortgage loans where the borrower puts less than 20% down.

Similar to other types of insurance we use everyday, mortgage insurance is paid for ahead of time on the chance that you might need it. Like car insurance, you may pay for it and never need it. However, the major benefit of Private Mortgage Insurance is that you do not need to have it for the length of the mortgage loan.

By law, once you reach 78% Loan to Value, or 22% equity in your home, PMI automatically terminates. Even better, at 80% Loan to Value, or 20% worth of mortgage payments made, you can request to cancel your PMI. We currently use five PMI Providers, and we work closely with all of them to find you the lowest costs.

REMEMBER:  Owning your home trumps renting. While you get no financial benefit from paying rent each month, home ownership represents an investment you can live in. And with prices being kept in check, now is an excellent time to buy.

And finally, according to a recent Federal Reserve Board study; homeowners new worth (assets less debts) on average is $190,000, while renters net worth is just $5,000.

If you need more information about programs for First Time Home Buyers with Student Loan Debt, please call Steve and Eleanor Thorne 919 649 5058.  We love helping folks purchase their first home, and offer all of the programs that can help you get there!