Finding ways student debt and mortgages can mix
By Marilyn Kennedy Melia
Student loans are a financial weight on millions.
But it’s not just those with the bills who are impacted. The housing market, which in turn fuels the overall economy, is weakened. Indeed, several surveys show that many are delaying home purchases because of student debt.
Now, creative efforts are underway to help borrowers with student debt get a mortgage:
1. Mortgage lenders are recognizing contributions from an employer or parent toward student loan repayment.
Currently, about 4 percent of employers offer their workers a “student loan assistance” benefit. Under this benefit, which is growing more popular, firms regularly contribute directly to the education debt of the worker.
Moreover, some have a parent or other relative that provides regular help paying student loans, or other debt, like a car loan.
Fannie Mae, which makes lending rules, now allows lenders to consider these contributions in calculating how much mortgage for which a borrower qualifies.
2. One builder is now helping purchasers pay off debt, and more builders may follow.
Research on student debt holders showed that although many might be able to qualify for a mortgage, they didn’t want to add to their debt load with a mortgage, according to Jon Lawless of Fannie Mae.
Working with builder Lennar and its subsidiary Eagle Home Mortgage, Fannie Mae is monitoring a program whereby Lennar provides homebuyers up to 3 percent of their purchase price to pay down their student loan balance.
If this pilot is successful, 18 other building companies are hoping to roll out a similar offer, according to Lawless.
3. Education debt holders that are homeowners may be able to pay down student loans with a cash-out refinance.
Any homeowner who refinances his mortgage for a bigger one pays a slightly higher interest rate and fees than borrowers who refinance without a “cash-out”. Now, those higher charges are eliminated for those using cash to pay student debt, according to Lawless.
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