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IBR Student Loan Payments with Mortgage

2020 Guide to Qualifying for a Mortgage with Student Loans

When you have student loans, qualifying for a mortgage can get tricky.

COVID-19 UPDATE:  Federally serviced student loans were put into automatic administrative forbearance until September 30th, 2020 as part of the CARES Act, signed into law on March 27th, 2020.

If your payments were automatically withdrawn from your bank account, that has also been suspended.  If you are trying to qualify for a mortgage and you have an IBR or IDR payment plan, forbearance could present a problem.

If this happens to you, it’s not difficult to correct.

Additional Reading: COVID-19 Student Loan forbearance, Will it Hurt My Home Loan Approval?

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In this Article

  • Understanding IBR
  • Student Loan Payment Changes
  • Calculating Your Debt to Income Ratio
  • Student Loan Guideline Snapshot 
  • Freddie & Fannie Swap Guidelines
  • Creative Solutions to Solve Problems 
  • Why Lenders Get it Wrong

Understanding IBR

Your student loan payments may be deferred or in forbearance.  If your loans are deferred, you have no payments due.

When you begin to make payments on your student loans, you may have several options.

You may be making payments on your student loan based on your income.  This is called an Income-Based Repayment (IBR) plan.

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IBR plans typically will not cover the principal and interest due, and the loan balance may increase even though you are making payments.

If your payment is based on a calculation that pays off your loan in full at the end of the loan term, this is an amortized payment.

All underwriting guidelines with all lenders will allow you to use an amortized payment when calculating your debt to income ratio.

IBR plans could also leave you with a $0.00 payment, even though your loan is in repayment status.  Your income is reviewed every year to determine your new payment over the next year.

Student Loan Payment Change History

More and more students are straddled with student loan debt for years after leaving school.

Being chained to student loan debt requires an experienced locksmith to unlock the correct guidelines to get you approved for a home loan.

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It’s almost a full-time job keeping up with the updates to the underwriting guidelines, and IBR payments seem to send many loan officers into a tailspin of misinformation.

Student Loan Guideline Changes Since 2015

  • 2 times for Fannie Mae Conventional Loans
  • 3 times for Freddie Mac Conventional Loans (January 2020 most recent)
  • 1 time for FHA Insured Loans
  • 2 times for VA Guaranteed Loans
  • 2 time for USDA Guaranteed Loans

The first major change to the underwriting guidelines happened when lenders were no longer allowed to ignore deferred payments or loans in forbearance.

The second major change was that you had to apply a payment to any student loan balance.  If the payment reporting on your credit report will not pay off the loan at the end of a fixed term, your payments are not amortized.

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Non-amortized payments became public enemy #1 by Fannie Mae, FHA, and USDA.  In 2015, Freddie Mac guidelines did not allow for deferred payments or loans in forbearance and would allow IBR payments, even if the reported payment is $0.00.

NEW – Freddie Mac Excludes PSLF from DTI – This is huge news coming from Freddie Mac, effective January 2nd, 2020.  If you can document that you are qualified for a public service loan forgiveness program, or an employer-sponsored loan forgiveness program, you should be able to exclude your student loan payments from your DTI.

Calculating Your Debt to Income Ratio (DTI)

The entire student loan debacle is being caused by confusion around how your debt to income ratios are calculated.

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Your debt to income ratio is calculated as your proposed housing payment (when buying a home) plus your monthly liabilities from your credit report, as a percentage of your gross income.

When using a Fannie Mae or Freddie Mac Conventional loan, the total housing payment plus monthly liabilities cannot exceed 50% of your gross income, or a 50% DTI.

Borrowers using an FHA mortgage have 2 DTI ratios.  A front-end debt to income ratio is your housing payment as a percentage of your income.  A back-end debt to income ratio includes your monthly liabilities from your credit report.

FHA will allow your housing payment to be as high as 46.99% front-end DTI, and a maximum 56.99% back-end DTI including your debts.

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Student loans become confusing when no payment is reported on your credit report, or when your payment is an Income-Based Repayment (IBR) payment.

2020 Student Loan Guidelines Snapshot

Fannie Mae Conventional

  • Income-Based Payment – Allowed – $0 ok with supporting documentation* – Updated April, 2017
  • Amortized Payment – Ok with all lenders
  • Deferred or forbearance use 1% of the loan balance.
  • *Expect to get documentation from your student loan servicer

Freddie Mac Conventional – UPDATE Effective January 2020

  • PSLF Eligible? Student loans may be ignored – NEW: Effective January 2nd, 2020
  • Income-based payments – May use payment as reported on credit report
  • $0 payment on NO LONGER used – must use .5% – See PSLF Update
  • Can exclude from debt to income calculation if less than 10 months payments left
  • Deferred or forbearance use .5% of loan balance – Effective November 1st, 2018

FHA Government Insured

  • Non-amortized Payment – Not Allowed | Must use 1% of the loan balance
  • Amortized Payment – Ok with all lenders
  • Deferred or forbearance use 1% of the loan balance.

VA Guaranteed Loan

  • Non-amortized Payment – Allowed, even with $0.00 payment
  • Amortized Payment – Ok with all lenders
  • Deferred or forbearance must use 5% of loan balance divided by 12
  • Expect to get documentation from your student loan servicer

USDA Guaranteed Loan – Updated September 2019

  • Non-amortized Payment – Use payment on credit report 0r .50%, whichever is greater.
  • Amortized Payment – Ok with all lenders
  • Deferred or forbearance use .50% of the loan balance.

Creative Solutions to Solve Student Loan Problems

If you are trying to buy a home, and the pieces just aren’t fitting together, here are some creative solutions that past clients have successfully done.

Payments Deferred or Loan in Forbearance

If you have loans with deferred payments, or if your loan is in forbearance, we have had homebuyers go into an income-based repayment plan, and qualify using a Fannie Mae Conventional

Parents Co-Sign and Pay Student Loan Payment

Fannie Mae recently updated their “Contingent liability” guideline to allow student loan payments to be ignored, if you can show that a co-signer has made the payments for the past 12 months.

Debt to Income Ratio too High for Conventional

This home buyer is consolidating over a dozen loans into a 30 year amortized payment.  We needed an amortized payment to take advantage of more flexible DTI requirements over Conventional.

Payment Not Showing Up on Credit Report

If your loan is in repayment, your lender can get a credit supplement (if needed) from the credit bureau by providing them with a copy of your statement from your student loan lender.

Have Less than 5% Down Payment and IBR Payment

It is a common misunderstanding that FHA offers the lowest down payment.  VA & USDA offer 100% financing, but additional qualifying is required.

Both Fannie Mae and Freddie Mac have programs that allow for as little as a 3% down payment.  Eligibility can be determined by income limits, or the area you are buying in.

There are no income limits for homes being purchased in “targeted” low to moderate-income.  These special programs also include discounted mortgage insurance and discounted closing costs.

Can Only Qualify for FHA Loan

There are many reasons why an FHA loan is the best option for you.  Conventional financing is more restrictive, requires a higher credit score, and is often not an option if you have a lot of debt on your credit report.

The solution is to document what an amortized payment would be should you start making payments on your student loan that would pay the loan off at the end of the loan term.

There is no guideline that requires that you are actually in repayment on your loan, only that you use an amortized payment for the purpose of calculating your debt to income ratio.

There are a couple of ways you can identify what this payment would be:

  • Call your student loan lender and ask them for a statement/quote showing what that payment would be.
  • Begin making payments on your student loan (you can put it back into deferment after your home loan is completed)

If you are going to consider either of these options, first discuss with an experienced mortgage loan officer whether or not you would still qualify using an amortized payment.

Your loan officer can calculate what that payment might be.  The problem you are solving for is getting documentation form the student loan lender supporting that payment.

Why Lenders Get it Wrong

If you’re calling from a TV, radio, or internet advertisement, you are most likely be connected to a call center, with little to no actual mortgage experience.

I call these “big box” lenders.  These lenders are amazing at processing a certain type of loan file that does not require anything too far outside the box.

Student loan payments are not really so far outside the box, but the timing for when these issues are found could not be worse.

If you are working through a big box lender call center, your application is not getting in front of a professional until it reaches the underwriter.

The underwriting guidelines for student loans, and specifically income-based repayment plans, have changed several times over the past 2 to 3 years.

Many times, your file is not in front of the underwriter until after you’ve already accepted your purchase offer and paid for the appraisal.

Hopefully, there’s enough time, and the underwriter is experienced enough to look up the guidelines and can figure out how to save your new home by getting you approved for the right loan.

I wouldn’t believe this happens as much as it does if I hadn’t experienced it personally!  We first covered this topic in 2015, and have answered hundreds of IBR questions from buyers across the Country.

So many of these horror stories we hear could have been avoided if a professional loan officer was used, and not a call center lender.

Working with an Expert

We have been helping home buyers and homeowners qualify for a mortgage with student loans since 2015 when the major challenges we face today were first introduced.

Find My Way Home is an Expert Network of experienced mortgage professionals, here to answer your questions, and put you on the right path.

You can get your questions answered by either giving us a little more information here, and we will match you with a loan officer who is an expert with student loan guidelines, or you can leave a comment or question below.

We do not sell your information to multiple lenders and hope you find someone experienced, we will introduce you to one loan officer that we know and trust that can help.

Any question that you ask below, I will personally answer, and if needed, we can introduce you to a professional, experienced loan officer that I know can help.

About the Author

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Larinda says:

    I finally got my student loans permanent discharge approved. The lenders have returned the loans to Nelnet and payments are not allowed and previous payments were to be refunded. If you call they say my balance is zero. But they say everything isn’t finalized for 3 years. I dont think my 650 credit score is high enough for a conventional loan.
    How can I get a mortgage? Will be student loans have to be calculated some how?

    • Scott Schang says:

      Hi Larinda, yes, the student loans would have to be calculated in some way. Depending on the type of loan you’re applying for, that calculation is going to be different.

      Freddie Mac Conventional underwriting guidelines were updated in January 2020 to allow the lender to ignore any student loan that is eligible for forgiveness.

      You can definitely qualify for a conventional mortgage with a 650 credit score. The minimum allowed score is 620. Your credit score is just one factor of qualifying for a mortgage.

      Your down payment, reserves and debt to income ratios also play a major role in mitigating the risk of a “lower” credit score. 650 is not low, and it would improve your interest rate and ability to get approved if you could get that score up.

      And again, it depends on why the credit score is 650. If you just have a couple of maxed-out credit cards, that can ding your score by 100 points. I’ve seen it many times. In that scenario, you have an opportunity to increase your scores by reducing the balance on the credit cards. If you need that money for the down payment, maybe you can borrow the money from friends or family to help you out.

      Finally, I would love to connect you with someone that I know and trust who is an expert in student loan guidelines. And remember, sometimes, it’s a journey. It might take a few months to put yourself into a position to buy, and with the right people around you, it will go by in no time!

      If you would like an introduction, shoot me an email to scott@findmywayhome.com and let me know what state you’re buying in.

      I hope this is helpful?

  • Becky says:

    This is incredible information!!! My husband and I are in quite a tricky situation, he is active duty military, currently have a VA mortgage on our primary residence. We are being relocated by the army and do not want to sell (bought this home as our forever home) And plan to return in 3 years. We are trying to find the best option for us to purchase a home in the new duty station, due to our insane amount of student loans we are having a very difficult time with the DTI ratio. Both my husband and I are employed by the federal government. Any help would be so very much appreciated!!!! 🇺🇸

    • Scott Schang says:

      Hi Becky, thank you for the kind words, and more importantly THANK YOU and your husband for your Service to our Country!

      We can absolutely find your way through this, you have several options!

      I am going to assume that you are both eligible for the PSLF program and intend on having your student loans forgiven?
      If I am going to assume that, I’m also going to assume that your loans are in some form of income-based repayment plan, deferred, or maybe even currently in forbearance?

      Do you have enough entitlement left to use a VA loan for the new home? If so, VA is by far the most flexible with how the student loan payments are calculated.

      What’s happening right now is that your student loan payments are being calculated in a way that is blowing out your DTI. It’s possible that the loan officer does not have enough experience to know how to calculate your DTI. It’s also possible that your repayment program could use a second look, and maybe even and upgrade.

      There are a lot of moving parts here. I really want to have this conversation here so that anyone else in a similar situation knows what to look at in what order, but I have a lot of questions.

      If it’s easier, you can shoot me an email at scott@findmywayhome.com and let’s jump on a call. If you would like to have the conversation here, let’s start with the statuses of the student loans.

      Could you tell me what the payment status is on those loans, and do you know what kind of loan your lender is trying to approve you for?

      We’ll get to the bottom of this! I promise 🙂

      I hope this helps?

  • Vee says:

    Hi Scott,

    I’m currently working with my mortgage loan officer on my student loan for a pre-approval. I emailed you about this as well. I’ve several loans on a IBR status that I provided documentation. He asked me to contact Navient for individual account numbers for each IBR loan so he can cross reference on the credit report and have them added with a zero payment balance as a credit supplementation update to the credit report. Navient said they don’t have separate account numbers for them. It’s a master account followed by dash 1, 2… However, the credit report says different. I trust my LO knows what he’s doing but I’m frustrated working with Navient to provide him this information. I have a total of 34 loans with 22 of them in the IBR. Is there different verbiage I should be using?

    Is there a way around this? My LO says he’s working backwards so underwriting will approve me and this is the only impediment. Please advise! Thanks! This is truly hell!


    • Scott Schang says:

      Hi Vee, if all of the accounts are under one master account, are they also listed on the same statement? Also, all federally serviced student loans were put into administrative forbearance automatically on March 27th, until September 30th – do you know if your loans were put into this status? That would certainly cause a challenge.

      Another thought, are you eligible for a public service loan forgiveness, or other employer-related loan forgiveness program? If so, Freddie Mac guidelines may allow you to disregard your student loans completely when calculating your debt to income ratios.

      I will reply to your email as well! I hope this helps?

  • Monica Fernandez says:

    Hi Scott. Quick question? My husband and I are currently approved for a home. However on of the conditions is that for his student loan to be put in the income based repayment plan. Which we did a month ago. However, because this is his last semester and because of COVID his loans are in forbearance until September 2020. His student loan borrower stated that they cannot proves his idr application until then but they provided a detail letter of what his payment are going to be. Will an underwriter accept this?

    • Scott Schang says:

      Hi Monica, I know we’re emailing back and forth, and I wanted to respond here as well. Fannie Mae’s student loan guidelines clearly state that if the loan is currently in deferment or forbearance, you must use a fully amortized payment or 1% of the balance for calculating your debt to income ratio.

      The statement showing evidence of the IDR payment will suffice once the loans are out of deferment or forbearance, but I do not believe once your loans are in a repayment status that the letter could be used to avoid the 1% calculation if it is not being reflected on the credit report yet.

      I hope this helps?

  • Amanda says:

    Hi, Mr. Schang!

    I applied for a mortgage just before Covid hit. I graduated in 2012 and have 46k in student loan debt that I have been making years of on-time payments of $0 on thanks to an IBR plan. It will be forgiven after 20 years of payment, so I’ve got 12 years to go. My income is 32.5k at a place I’ve been employed at for over 11 years, credit score is 690. I was pre-approved for a USDA loan of 70k, which isn’t enough to do much of anything with. I forget what percentage of the total loans he took into account. I was hoping to get some advice and see if there are other options you’d suggest. This is all very new and foreign to me, but I’m learning bits at a time as I pick through the information.

    Thanks so much for all the time and work you’ve put in to making this information available to us. It means a lot when experts are willing to share their knowledge and expertise to help others like this!

    • Scott Schang says:

      Hi Amanda, sorry for the delay in getting back to you.

      There is a solution for you using a conventional loan. There are two different underwriting guidelines for conventional loans, Fannie Mae & Freddie Mac.

      Fannie Mae underwriting guidelines will allow you to use your $0 monthly payment as long as you can document that your loan is in a repayment status.

      Freddie Mac underwriting guidelines will allow you to exclude your student loan from your liabilities if you can document your forgiveness eligibility.

      So, you definitely have options. Your score is good for conventional, but it will require a down payment. If you qualified for USDA, you may also qualify for Fannie Mae’s HomeReady program, which allows as little as 3% down payment if you meet income restrictions.

      If you haven’t spoken to a loan officer yet, I can introduce you to someone that I know and trust. If you have spoken to a loan officer and they haven’t given you these options, I can offer a second opinion 🙂

      Just shoot me an email to scott@findmywayhome.com and let me know what state you’re buying in. I’ll make an introduction by email.

      Hope this helps?

  • Sean McLean says:

    Hello Scott,
    Thank you for this site. It seems like an excellent source of information. My spouse and I are working with an underwriter who is figuring .5% of our combined student loan balance on the back end for a conventional. We are in deferment as we finish grad school (apx 18-24 mos.). I had someone mention that sometimes it is possible to get a letter from your loan servicer stating what your IBR will be when repayment begins (based off most recent tax filing). Even the .5% is much, much higher than our actual payments will be. We are both educators in at risk urban schools and our servicers have already told us we qualify for IBR. Have you seen this situation before? Apologies for the long winded question, and thank you!

    • Scott Schang says:

      Sean, thank you for the kind words, and thank you for your question…it’s a really good question!

      It’s interesting that you mention this, I just did an interview yesterday with LoanSense. This is a company that helps folks identify the right repayment plan (there are 4 different income-based repayment plans, IBR has the highest payment!).

      You might find this very relevant, here’s a link to the interview – https://youtu.be/TLiZR4GHKUQ

      If your loans are currently in deferment, there are no other options currently in the guidelines that would allow you to use a projected payment amount. The .50% calculation using Freddie Mac underwriting guidelines is the best you’re going to be able to do to get that payment in line, other than going into an income-based payment.

      That said, if you can qualify for an income-based payment plan and your payment is $0, you can use Fannie Mae underwriting guidelines to qualify.

      It sounds like your loan officer is going down the right path using the Freddie Mac guidelines. I can offer you a second opinion, but honestly, it sounds like your lender has experience with student loan guidelines.

      I hope this helps?

  • Sarah A Allen says:

    Hi Scott, I’m not sure what happened to my response down below but yes I am I treated in someone who can help me that knows what they are doing. I’d like to mention, I am currently looking at USDA loan. Can these accept $0 mo thly payments for student loans? The banks I’m working with will not accept that payment spite the letter I provided from fedloan telling then this is my monthly obligation.

    • Scott Schang says:

      Hi Sarah, comments are held in moderation and do not publish automatically. USDA guidelines state that you can use the payment reported on your credit report, or .50% whichever is greater. What is the reason for waiting 6 months to use conventional?

      There is absolutely no cost to introducing you to an expert with student loans. These are friends of mine that specialize in challenging guidelines. We’re just here to help.

      Shoot me an email to scott@findmywayhome.com and I will introduce you to someone that can run these numbers for you and hope you make a more informed decision.

      I hope this helps?

  • Sarah A Allen says:

    I believe you’ve already covered it however I’m going to ask again to clarify. I am on an income-driven repayment plan and for the past two years my monthly payment has been $0. I currently work for a nonprofit and plan to for the next eight years so that I can eventually get loan forgiveness. I’ve applied for a house and they refuse to take the $0 payment as the payment. I’ve showed them documentation I’ve even had the lender write a letter. One Bank wanted to charge 1% of my total loan for a monthly payment the other bank wanted to charge 0.5% of my total loan for the monthly payment. Is this normal or protocol? My income is not going to change much over the next few years with my household size and my payment will probably be about the same. And even when my income does increase and I do a crew a payment for my student loans that just means I have more money to also pay for my mortgage. Is there lenders that know how to handle this well or am I thinking in correctly on this? How do I get my lender to put $0 payments for my mortgage? Or how do I find a mortgage lender that knows how to work with student loan payments better? The payment amount that they calculate eats a huge chunk of my debt-to-income ratio and limits what I’m able to buy for a home.

    • Scott Schang says:

      Hi Sarah, this is not uncommon when you’re working with an FDIC insured depository bank. I know that Bank of American and Wells Fargo both automatically use 1.25% as the calculation.

      The good news is, I can help! I can introduce you to a loan officer that has experience with student loan guidelines and will follow Fannie Mae and Freddie Mac conventional underwriting guidelines, which allow you to use your $0 payment.

      The only caveat is that you may have to document that the student loan is in a repayment status, especially now since most student loans were put into automatic administrative forbearance due to COVID-19

      • Sarah says:

        That would be great and cedloans has already provided me with that documentation. However, I forgot to add I am trying to get a USDA loan. If I wait 6 months I will shoot for conventional.
        Is there a cost to st me up with someone that can help?

      • Sarah says:

        Fedloan not cedloan sorry

  • Mia says:

    Hi Scott,

    I had a question about my particular situation. My husband and I have owned a house previously before the cc and student loan debt. It has been over 5 years since owning now thinking about purchasing again. There is a chptr 13 BK that is 2 years discharged so FHA would be our only option right now. I have student loan debt maybe around $80,000 currently IBR payment plan is $0. The lender is advising I get a fully amortized payment plan no more than $150 a month. Would that mean I would pay $150 monthly as opposed to my current $0 (I would rather pay $0 monthly lol) Do I get this letter from Navient? I am Atlanta, Georgia area

    • Scott Schang says:

      Hi Mia, you’re being given a lot of misinformation I’m afraid. Here are the big ones…

      Chapter 13 discharged 2 years – You are eligible for Conventional financing, which would allow you to use your payment as reported on the credit report as long as you can document that you’re in a repayment status, and not in forbearance or deferment.

      Fully amortized payment no more than $150 a month. These terms simply are not available. The maximum loan term would be 30 years. $222.22 a month would pay off $80,000 over 30 years, and that doesn’t include interest.

      This just tells me that the loan officer you’re getting your information from has no experience with either bankruptcy or student loan guidelines, and does not think that it’s important enough to look up the guidelines before ignorantly suggesting that people restructure their student loans.

      I have a friend in GA that can help. He’s very experienced with both of these guidelines (we are kind of experts in both of these subjects for some reason). If you’re interested, I can make an introduction by email.

      Shoot me an email to scott@findmywayhome.com and if you can, copy and paste this comment in the body of the email.

      I hope this helps?

  • Taneisha says:

    Do the lenders calculate 1% of the total loan amount or 1% of the monthly payment?

    • Scott Schang says:

      Taneisha, this is a really good question. If you find yourself in a position where you absolutely must use the 1%, it’s one percent of the outstanding loan balance.

      That said, there are other options if your loan is income-based, deferred, or in forbearance. For instance, a Conventional loan using Fannie Mae or Freddie Mac underwriting guidelines will allow you to use an income-based or income-driven payment when qualifying.

      Both Freddie Mac, Conventional, and USDA allow you to use .5% if you have no reported payment.

      I hope this helps?