Advertisement
college

Mortgage Help for Debt-Saddled Grads

New rules make it easier to qualify for a home loan or to use a refi to pay off college debt.

Today’s college grads leave school with an average of $34,000 in student-loan debt. That mound of debt is delaying homeownership among millennials. Parents and grandparents who cosigned private student loans or took out Parent PLUS loans may also be burdened. Now, mortgage giant Fannie Mae has launched loan-underwriting changes that will lighten the load.

When calculating a borrower’s monthly debt-to-income ratio, lenders will exclude payments made in the past year by someone else—typically a parent or employer—for nonmortgage debt, including student loans. And for those on an income-adjusted repayment plan, lenders will use the lower payment on a federally insured loan instead of the higher, fully amortized payment of principal and interest.

Advertisement - Article continues below

A third initiative allows homeowners to refinance their mortgage, taking cash out to disburse directly to a student-loan lender to pay off debt. That will also help parents or grandparents who borrowed to help the kids and now want to re­finance. The new Student Loan Cash-Out Refinance loan can’t exceed 80% of the current market value of the home. For example, refinancing a $175,000 mortgage, lowering the rate from 4% to 3.75% and rolling in $25,000 in student loans would save borrowers about $80 a month.

Refinancers will lose some student-loan protections, including income-based repayment and deferment on federal loans. You’ll lose any student-loan interest deductions for which you may have been eligible, but you’ll gain a larger mortgage-interest deduction if you itemize on your tax return.

Advertisement

Most Popular

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020

Recommended

Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
7 Ways the Pandemic Will Change College Forever
college

7 Ways the Pandemic Will Change College Forever

Colleges and universities face steep budget cuts, enrollment challenges and new types of competition as a result of COVID-19. We cover the changes you…
June 19, 2020
12 Tax Deductions and Credits That Help You Pay for College
Tax Breaks

12 Tax Deductions and Credits That Help You Pay for College

Whether you're saving for college, currently paying tuition, or dealing with student loan debt, there's probably a tax break that can help your bottom…
June 12, 2020
Milliennials Face Their Second Recession
credit & debt

Milliennials Face Their Second Recession

Forty percent of millennials say the pandemic will likely cause them to delay payments on their debts. Does that include you? Time to take action.
June 4, 2020