Cash Out Refinances for Student Loans

Fannie Mae has revamped some guidelines regarding student loans and how they are treated in debt to income ratios for qualifying for a mortgage. This is great news… however what’s even better news for home owners who have student loans, Fannie Mae is offering improved pricing on cash out refinances for paying off student loans!

Effective immediately, Fannie Mae will waive the loan level price adjustments (LLPA) on cash-out refinances when student loan are being paid off. LLPA’s are intended to be “risk based” pricing and they directly impact mortgage rates.

For 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. Click here for Fannie Mae’s LLPA matrix.  The lower your credit score, the higher the LLPA is because of the anticipated higher risk for the loan.  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.

With how much homes in the greater Seattle area have appreciated, this may be a great opportunity to eliminate student loan debts…especially with the preferred lower mortgage rate!  Click here for a mortgage rate quote.

If I can help you with your refinance or purchase of a home located anywhere in Washington state, please contact me. I’m happy to help you!


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