Mortgage Mania

I don’t think I'm planning too far ahead. After college, is it possible to get a mortgage even with student debt?

I assume you're going to college to be able to afford a home later, so now is a good time to ask this question. You're in debt and you want to know how to get deeper, much deeper, into debt. The federal government is right there to help you with its new mortgage programs.

Measures have been taken in recent months to allow homeowners to refinance their mortgages to pay off their student debts. The largest backer of mortgage credit in the country, Fannie Mae, has issued new guidelines to swap student loan debt for mortgage debt. This could enable significant savings since the interest rates on mortgages are generally a lot lower than those on student loans.

Around 43 million Americans are shouldering student debts amounting to $1.3 trillion nationwide. Not only does this drag on borrowers’ ability to save money, but also deters younger people from buying homes, condos, and apartments, leaving them in rental accommodations or still living with parents.

This nation is recognizing the financial realities many new graduates face with burgeoning student debt. A Federal Reserve Bank report revealed that condo or home ownership correlates with college attainment. However, increasing student loan delinquency rates could damage credit scores and adversely affect graduate’s ability to buy a home.

There are three major changes that could alleviate the situation. For around 8.5 million homeowners that still have student debts, the costs of home refinancing have been reduced. This is on the condition that any funds pulled out of the equity are used solely to pay off student debts.

Debt to income (DTI) calculations have been tweaked for those who participate in federal reduced-payment plans for student loans. Your actual monthly payments as reported to credit bureaus will count towards your DTI ratio. That DTI ratio determines how much mortgage debt a lender will allow you to carry.

Non-mortgage debts that are being paid by someone else, such as parents, will no longer be included in your DTI calculations, providing they have been made regularly for at least 12 months. This should improve debt ratios for young would-be home buyers. It should, in theory, now become easier to secure loans with more lenient DTI calculations.

Previously, mortgage lenders would struggle to approve home loans when there is still between $50K and $100K outstanding in unpaid student loan balances. But combining student loans and mortgages makes things look a little rosier on paper.

There is growing concern that borrowers could default on their homes if they struggle to repay these mounting debts, however, this has always been the case. This default fear has forced borrowers to carry additional life insurance and accident coverage. Many student loans were discharged upon death, but mortgage loans are not.

Before you are even in the market for a mortgage, try not to miss student loan payments, as this could negatively affect your FICO score which generally needs to be above 650 to qualify for a mortgage. Things are slowly moving in the right direction regarding balancing both student loans and a mortgage.

Good times are when people make debts to pay in bad times - Robert Quinlin.

(Martin J. Young is a former correspondent of Asia Times).