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IBR Student Loan Payments with Mortgage

2021 Guide to Qualifying for a Mortgage with Student Loans

FHA UPDATE – June 17th, 2021:  FHA eases Student Loan Guidelines – Details Below

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If your payments were automatically withdrawn from your bank account, that has also been suspended.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

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

In this Article

  • Understanding IBR
  • Student Loan Payment Changes
  • Calculating Your Debt to Income Ratio
  • Student Loan Guideline Snapshot 
  • Why Lenders Get it Wrong

Understanding Income-Based Repayment Plans

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.

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

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.

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

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)
  • 2 times 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.

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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.

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.

Get Introduced to a Student Loan Mortgage Expert Now

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.

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.

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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.

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

FHA Government Insured – Updated June, 2021

  • Non-amortized Payment – Use actual payment from credit report or servicer if over $0.00
  • Amortized Payment – Ok with all lenders
  • Deferred, forbearance, or $0.00 income-based payment use .5% of the loan balance.

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

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.

Why Lenders Get it Wrong

If you’re calling from a TV, radio, or internet advertisement, you are most likely to 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

  • Roxanne says:

    I have over 450k worth on student loans and possibly still counting as I am in my last year as a doctoral candidate. My credit score fluctuates between 640-694 ( almost to that 700) and I make about 75K gross annual . Therefore, I bring home about 4,500k a month after takes because my gross pay is 6,700K . Having a hard time getting approved for a home loan . I cant even get into a condo at this point I feel but I pay 1500 on rent a month and other bills are paid each month and I have 10k saved to put down towards house . I have no co singer . What can I do? I am on a income based program and just turned in my PSLF packet.

    • Scott Schang says:

      Hi Roxanne, thank you for your question. I also saw your question on YouTube, but YouTube decided to filter your comment for some reason and I cannot answer it. I think it’s because there are numbers in your question and their system thought it was spam.

      I’m glad you asked here. If the lender you’re talking to is trying to approve you for an FHA loan, or if they do not know the guidelines, they are probably using 1% of your loan balance when trying to qualify you. Using a Conventional loan that follows Fannie Mae or Freddie Mac guidelines will allow you to use that payment when calculating your debt to income ratios.

      I know you’ve been connected with someone that I know and trust. You’re in good hands. We have a lot of experience with these guidelines and can give you an accurate assessment of your options.

      I hope this helps?

  • Toni J says:

    I am currently in graduate school and I have $115,000 in student loans with and income of $42,000 and credit score of 670.. My student loans are in deferment because I have another year to go to graduation. Would I qualify for a home loan ?

  • Gregory says:

    Thank you so much.

  • Breeze says:

    My student loans are $136k and I have an IDR plan, I also have an amortized schedule for my parent loans. I have been advised that only the 1% or possibly the.5% is the only thing I can do. Also that I cannot use the monthly IDE payment or amortization schedule. Please advise. I’ve been given so many answers.

    • Scott Schang says:

      It sounds like your loans are currently in administrative forbearance due to COVID-19? If you were making payments prior to forbearance, experienced underwriters are able to use that payment for calculating your debt to income ratio. The 1% is going to be required no matter what if you’re applying for an FHA loan. The .5% is a Freddie Mac conventional underwriting guideline if your loans are in forbearance or deferment.

      If you would like, I can introduce you to someone I know and trust that has experience with these guidleines. Shoot me an email at scott@findywayhome.com and let me know what State you’re in.

      You would obviously have to meet all other qualifying guidelines, but we can at least get through the student loan part.

      I hope this helps?