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IBR Student Loan Payments with Mortgage

2021 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If your payments were automatically withdrawn from your bank account, that has also been suspended.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.

2021 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 

  • 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 from 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

  • Sila Vlachou says:

    Hi. I have loans up to $178,000. I was in a payment reduction plan for years now until i went back to school. I am getting an FHA loan but I feel like they are quoting too much for the loans per month. They are quoting me to almost $1600 per month. is it possible to get paperwork from the lender that i have been in a payment reduction plan and my monthly payment is only $600 instead of $1600? That will bring my DTI ratio down. I don’t think my loan guy is looking at everything here.

    • Scott Schang says:

      Hi Sila, ok, FHA is very specific about how it treats student loan payments. Unless the loan is fully amortized to pay off at the end of the term, the underwriter will use 1% of the loan balance, so your payment is actually $1,780, not $1,600.

      If you have documentation that shows that your $600 payment will pay off the loan at the end of a fixed term, then the underwriter will use that payment amount. If your payment will increase in the future, you’re going to be stuck with the 1% rule.

      This takes most people out of the running for an FHA loan. There are other options. Look at conventional financing that follows either Fannie Mae or Freddie Mac underwriting guidelines. You also have USDA as an option that will only use the actual payment or .5% of the balance, whichever is highest. That’s still only $890 as opposed to $1,780.

      If you would like an introduction to an experienced loan officer that understands student laon guildeines, shoot me an email to scott@findmywayhome.com and let me know what State you’re buying in.

      I hope this helps?

  • Wes says:

    My wife and I have a combined $400000 plus in fed student loans. Currently I am in an in school deferment until June 2021. We have combined income of $135000 and no debt other than auto payments (combined $800).

    Our previous mortgage in August 2018 we were able to get a letter from the servicer showing what payments would be under PAYE after entering repayment and this was used as to qualify us for the mortgage vs a 1% payment.

    Is this still possible? Can I get a letter from servicer documenting this payment which is $371 vs $4000 or do new rules preclude us from using this route?

    • Scott Schang says:

      Hi Wes, the easiest way around this is to contact your servicer and request to be removed from administrative forbearance.

      To specifically address your question, in theory and in actual practice we have done this. It ultimately comes down underwriter discretion in most cases because there is no specific guidance on how to deal with administrative forbearance due to COVID-19.

      If you were in a PAYE program prior to the administrative forbearance, documentation from the student loan servicer stating that you are still in that repayment program (after forbearance) that would make this a much easier sell to the underwriter than if you were not in the PAYE program prior to forbearance.

      Again, your experience is going to vary by lender/loan officer experience.

      If your loan officer/lender is giving you push back on this, shoot me an email to scott@findmywayhome.com and I can introduce you to someone I know and trust that has experience with student loan guidelines.

      Hope this helps?

  • Steven says:

    When you talk about “amortizing student loans” rather than doing the 1% calculation. Can you just ask your student loan service provider for a breakdown of what that will look like, and use that? (i.e. I have 180K in student loans, 1% of that is = 1,800 a month) If I amortize 180K over 30 years, that’s roughly 500 bucks a month (with some interest, of course, but HUGE different. But do I actually HAVE to switch from IBR to the new payment off 500 a month+ before I’m allowed to use that amortized number, or can I just have them write a letter that that is the amount it would be?

    • Scott Schang says:

      Hi Steven, this is actually a really good question. The underwriter will require documentation to prove that your loan is currently in a repayment status, and what payment is required under that plan. It sounds like your loans may be in forbearance or deferment now? If that’s the case, there is another option – A conventional loan following Freddie Mac underwriting guidelines will allow you to use .5% instead of the 1% that Fannie Mae conventional or FHA requires.

      I have a couple of valuable resources that can help you find, and apply for the best income-based repayment plan, as well as loan officer contacts that have extensive experience with student loan guidelines.

      If you have further questions or would like more information on any of these options, feel free to email me directly at scott@findmywayhome.com

      Hope this helps?

  • Tracy says:

    I am wanting to refinance my loan. Been in my house 21 years, house over double value of what I owe and excellent credit. I am currently getting masters and loans in defferment. They said I need much more monthly income for 1 percent or get income based repayment. I can’t do either while working and doing masters. Is there a way around this? And it really upset me that he did a hard inquiry without telling me this first.

    • Scott Schang says:

      Hi Tracy, a Conventional loan that follows Freddie Mac underwriting guidelines allows only .5% of your principal balance, not 1%.

      If that doesn’t work, my next “go-to” would be to contact LoanSense, who are friends of ours that specialize in programs that can help you qualify for a mortgage.

      You can reach out to them at the LaonSense.com Website

      I hope this helps?

  • Sammy says:


    This page is SUPER helpful, and I really appreciate the up-to-date knowledge and expertise.

    In regards to Fannie & Freddie conventional, I was wondering if a Graduated Repayment plan payment amount could be used for DTI calculation. I have around $136k in loans. According to the Federal Student Aid Loan Simulator, going PAYE IBR will get me a payment of $766, while a Graduated Repayment starts at just $206 (and ends at $617 after 30 years).

    The graduated payment is fully amortizing over 30 years, but starts off low at $206 at about the time I plan on purchasing my home. Will Fannie & Freddie allow the $206 for DTI calculations?

    Furthermore, do you know if Federal Loans show the IBR/Graduated repayment amount on the credit report? Or does this have to be supplemented by documentation from my federal loan servicer?

    Thank You,

    • Scott Schang says:

      Hello Sammy, the answer to your question is yes, Fannie & Freddie will both allow you to use a “less than amortized” payment. Graduated is one option.

      Normally, the payment is reported accurately to your credit report, but it’s always a good idea to supplement it with documentation by the federal loan servicer in the event that it is not.

      I might also encourage you to look at this company, LoanSense – https://www.myloansense.com/findmywayhome/ – They specialize in getting you into the right loan, with the right payment, and can even help you enroll in a government forgiveness program if you qualify.

      I hope this helps? Also, if you need an introduction to a loan officer that specializes in student loan guidelines, shoot me an email to scott@findmywayhome.com and I can connect you with someone I know and trust.

      I hope this helps?

  • Tina says:

    Hello, I saw this on FHA.gov website re:student loan payments:

    How does a Mortgagee determine the monthly payment on a student loan?

    The Mortgagee must include all Student Loans in the Borrower’s liabilities, regardless of the payment type or status of payments.
    Student Loan refers to liabilities incurred for educational purposes.

    If the payment used for the monthly obligation is:
    less than 1 percent of the outstanding balance reported on the Borrower’s credit report, and
    less than the monthly payment reported on the Borrower’s credit report; or
    the actual documented payment, provided the payment will fully amortize the loan over its term.


    I’m hoping this is true because I’m trying for an FHA loan (if I do FHA loan, they are offering me down payment assistance) and my lender told me he can use the IDR amount.

    • Scott Schang says:

      Hi Tina, unfortunately, your loan officer does not have any experience with these guidelines and is giving you inaccurate information.

      On hud.gov/answers, the “answer” is below the excerpt you put in your comment:

      Regardless of the payment status, the Mortgagee must use either:
      the greater of:
      – 1 percent of the outstanding balance on the loan; or
      – the monthly payment reported on the Borrower’s credit report; or
      the actual documented payment provided the payment will fully amortize the loan over its term.

      Unless your student loan payment is fixed and will pay off the loan at the end of a fixed-term (fully amortized payment), you must use 1% of your student loan balance when calculating your debt to income ratio.

      With an IDR payment, your only option is conventional financing that follows either Fannie Mae or Freddie Mac underwriting guidelines.

      If you would like an introduction to someone that I know and trust and has experience with these guidelines, shoot me an email to scott@findmywayhome.com and let me know what Sate you’re buying in.

      It would be highly unusual if you could not use your buyer assistance program with a 30 year fixed conventional loan.

      I hope this helps?