Mortgage giant Fannie Mae has once again re-tooled some of their guidelines. This time it is regarding student loans and how they are treated in debt-to-income ratios for qualifying for a mortgage. This really is fantastic news.
The Big News
Effective immediately, Fannie Mae will waive the “loan level price adjustments” (LLPA), or rate increase adjustment, on cash-out refinances when student loan are being paid off. LLPA’s are intended to adjust for the “risk based” pricing and they directly impact mortgage rates.
Here’s a practical example: a cash out refinance with a loan to value of 80% and credit scores of 740 or higher, has a price adjustment of 0.875 points! This is typically factored into the cost of the rate. (you can click here for Fannie Mae’s LLPA matrix).
The lower your credit score, the higher the adjustment is because of the anticipated higher risk for the loan. Get this….if student loans are being paid off, the extra cost of the LLPA is waived!
In order to qualify for the new special student loan cash-out refinance, the following must take place:
- at least one student loan must be paid off;
- loan proceeds must be paid directly to the student loan servicers at closing;
- only student loans that the borrower (home owner) is personally obligated are eligible;
- student loan must be paid off in full with the proceeds from the refi. No partial payments are allowed;
- property may not be listed for sale at the time of the transaction.
Homes in the California and Arizona area have appreciated at a solid rate over the last few years. Now may be a great opportunity to eliminate student loan debts…especially with the preferred lower mortgage rate! Please do contact me for more regarding this program.