How to Restructure Your Student Payments to Qualify for a Mortgage
Student Loan Payments Causing Pain?
Qualifying for a mortgage when you have income-based student loan payments can be a huge challenge. But it doesn’t have to be.
At FindMyWayHome.com, we’ve been helping home buyers and homeowners with student loans since the guidelines first changed in 2015.
Qualifying for a mortgage when you have IBR student loans is one of the most popular articles on this website. As you can read in the comments on that article, many inexperienced loan officers and lenders screw this up.
Step number one is to find a professional loan officer with experience and expertise with student loan guidelines. You’ve got that covered because you’re here!
What I Learned About Student Loan Payments
Step number two is to make sure you have the right repayment plan. Even if you have an income-based repayment plan now if you have a public service loan forgiveness plan, you actually have 4 different options for income-based repayment.
This was a big takeaway from my interview with Catalina, CEO of LoanSense. Now that you know you have options for qualifying for a mortgage when you have income-based student loans, there are experts out there that can ensure that you’re in the best repayment plan for you.
Here are my biggest takeaways:
- Qualifying for student loan forgiveness hinges on filing the paperwork properly
- You have several options for finding the right payment for you
- Restructuring your loans could not only help you qualify for a mortgage,
- And it might also be a better repayment plan for you!
- There are experts for everything!
The LoanSense Interview
Whether you choose to watch the video or read the transcript I think you’re going to learn a lot from this interview. Catalina is very smart, and she’s passionate about serving those in need of direction.
If you have any questions, leave a comment or question below! Enjoy the interview 🙂
Scott – Hi again, everybody. This is Scott Schang, founder of findmywayhome.com. And today I’ve invited a special friend here, Catalina from LoanSense.
Everybody, if you’re on this page, you have student loans, not only do you have student loans, you’re also trying to qualify for a mortgage. Now, we see thousands and thousands of people land on this article every single month trying to navigate how do I figure out how to buy a home when I have student loans?
So, we brought Catalina on here today because I wanna have a conversation about income-based payments or different options with your student loans because most likely, you’ve spoken to somebody and they’ve given you a couple of different options, and you’re thinking, “I don’t know if I can qualify for a mortgage that way.”
And sometimes you have to do things with your student loans. Sometimes you don’t need to do anything with your student loans. So this stuff is way more complex than what some loan officer in a call center is able to handle or be able to answer these questions.
So, we’re bringing on real experts here to have real conversations about what your options are to put you in the best position to be able to qualify for this mortgage. So Catalina, thank you so much for joining us. I really appreciate it.
Catalina – Yeah, no problem Scott, happy to help people do the first step of wealth-building which is buying yourself a house. So congrats.
Scott – Yeah and overcome the first hurdle that prevents you from wealth building, which is those crazy student loans that you’ve racked up
Catalina – Yes.
Scott – over the years, right?
Catalina – Yup, precisely.
Scott – So, Catalina the biggest problem by far that folks have when they come to our website is that they’re in some sort of an income-based plan. And I use the term IBR for Income-Based Repayment, but there’s more than one way to have some sort of an income-driven plan, is that right?
Catalina – Right. Correct. So, Income-Based Repayment is one of four plans actually that are based on your income. So IBR is actually older program.
More recently, there are now programs such as Pay As You Earn and Revised Pay As You Earn, they’re called, and they’re only 10% of your… It’s a formula, it’s called discretionary income, but it’s basically a formula part of your income, whereas Income-Based Repayment is actually 15%.
So if you qualify for Pay As You Earn, that’s actually a more preferable payment option because you can actually get access to more forgiveness if you pay less every month towards your student loan. And it’s projected right now that about a third of Americans actually have higher student loan payments than their current rent. So it’s really vital
Scott – Oh, wow.
Catalina – that if you aren’t going to buy a house, you really understand what the best option is on how to manage your student loans because there are plans, these four plans are talking about spot that are based on your income, come with interest subsidy by the government.
If you work for a nonprofit hospital system, school, municipal government, it’s called Public Service Loan Forgiveness, you’ll make 120 payments, everything after that is forgiven, completely tax-free.
You still can get access to those plans on the private side and still reduce your debt to income ratio, it’s just you have to pay for longer. So it’s really important for you to understand if you’re enrolling in a plan that gives interest subsidy, how much interest subsidy, how much interest forgiveness are you gonna get, right? That’s really important.
Or, alternatively, if you go on to an extended plan that extends out the amount of time you pay, just know that that does not come with interest subsidy, that just comes with stretching out your payment from 10 to 25 years, therefore you’re paying less, but you get no interest subsidy from the government on those plans.
So it’s really important that people understand for their long term financial health, a loan officer might just try to help you get a mortgage, which is fine
Scott – Right.
Catalina – because that’s their job. Our job, what we do is to loan experts is to make sure you’re on an optimal plan for you for the long term. So if we mix short term outcomes with long term outcomes for borrowers we can mix an expert mortgage lender, right?
With this loan, experts can create the best of both worlds, access to immediate homeownership, as well as long term overall financial gain for you and your family over the next 10 to 20 years.
So that’s where I see our value coming in, is we can help you immediately understand what to do with your student loans, but also what are some of the long term commitments and repercussions.
On the IBR, on the Income-Based Repayment all the income-driven plans with interest subsidy, it requires you to file your paperwork annually. So there is annual follow up after you close on that dream home, there’s still continued work to be done on an annualized basis.
But that’s okay because the payback and the value you’re getting is worth the once a year filing, right?
Scott – And I can tell you that that doesn’t impact your mortgage at all. So, whatever you qualified for at the time that you qualified for your mortgage, even though they’re reviewing your student loan repayment once a year, that’s not coming back and impacting your mortgage.
So, once you do whatever you need to do to get into that home, you’re kind of free and clear. Now, you’ve mentioned a couple of times the different types of income-based payment. The overwhelming challenge that folks have when they come to this website is they end up talking to a loan officer, and they try to get approved for like an FHA loan. FHA loan is the low hanging fruit.
It’s the easiest to qualify for, the interest rates and the fees are much lower if you don’t have perfect credit scores, down payment is really low. So most inexperienced loan officers automatically try to put people into FHA, because you don’t really have to know a lot about mortgages to know whether you can get qualified for FHA or not.
The challenges if they’re in an income-based plan, any income-based plan, actually, the reality is, if the payment that you make on a monthly basis will not pay the loan in full at the end of the loan term, you must use a calculation that’s 1% of your loan balance, your outstanding loan balance when calculating your debt-to-income ratio to determine whether you qualify for the home.
So that’s really what we’re talking about here is we’re trying to avoid that 1% calculation. And you can avoid that 1% calculation if you’re using USDA, VA or a conventional loan that uses Fannie Mae or Freddie Mac guidelines, we can use one of these income-based plans.
But you’re saying there’s four different income base plans and it sounds to me, I can tell you from my experience, most people have IBR, they have that income-based payment I see a lot of that.
But now you’re telling me that their Income-Based Repayment plan could be even lower, which to me is music to my ears because that means that folks can qualify for a bigger loan that can qualify for more home
Catalina – Right.
Scott – and it’s not like going to be double the home or anything, but if you’re teetering on the upwards limit of how much you qualify for. you restructure your student loan plan that’s gonna open it up and allow you to qualify for a little bit more.
Catalina – Right. Well, here’s here’s what I have to say like in the State of
Scott – Yup.
Catalina – California, right, it’s really important you qualify for as much as you can get because homes are so expensive, right? Number one,
Scott – Yup. Yeah.
Catalina – There are things we can do to help student loan borrowers like understanding for the purpose of a mortgage, getting on an extended repayment because that is payment at the full length of the term. So it can lower their debt-to-income as soon as they get that mortgage, then we can put them on an Income-Based Repayment plan that basic–
Scott – Oh.
Catalina – We could do some–
Scott – So that would be–
Catalina – as well because then their payment might increase a little, but at least now they’re getting interest subsidy by the government, right? So we could do like a dual approach, work with them to close the mortgage, then work with them for their long term financial help, and then work with them annually to help file their paperwork so we can get them that interest subsidy, right?
But the point is, there are tips and tricks depending on what your loans actually are, as well as what your income is. So, based on your income as well as your loan amount, the answer is gonna be different.
For some people, they earn in such a way where extended is going to be better for the mortgage, but for their long term financial health, after they close on the mortgage, they wanna get on like Revised Pay As You Earn, for example, because the government subsidizes all the interest for the first three years, and then 50% of all the interest on unsub and subsidized loans, for the duration of the loan period.
Imagine 50%, the government is subsidizing. And it’s not even based on income, you could earn 200,000 a year and qualify for Revised Pay As You Earn, and it’s 10% of your discretionary income instead of 15 like IBR.
So, obviously that may also not be the right approach for everybody because you’re married, then it takes… Basically there’s a lot of factors, and every borrower has a different plan of action, right?
Scott – Yup.
Catalina – Based on what is their actual income, what is their actual student loan debt amount. So we can work with borrowers understand this is what I need to do now, close my mortgage, this is the next best action, right?
Scott – Yeah
Catalina – So, yeah.
Scott – You and I aren’t going to answer anyone’s questions here. And I think we’ve accomplished what we want to accomplish, which is, “Yes, this is as complex as you think it is.” There’s a lot of moving parts, there’s a lot of different calculations, there’s a lot of different circumstances, how do I know if I should choose this path or this path?
So, this has been unbelievably valuable because you and I have these conversations, and sometimes you have these conversations with consumers.
But I don’t see a lot of these conversations around qualifying for a mortgage. And I think a lot of consumers don’t know how much control they have over their options. It’s not just, this is your one option and you’re stuck with it.
It sounds to me for instance, if I introduce them to somebody that I know and trust to do a mortgage, I know for an absolute fact that that loan officer is familiar with all of the guidelines, they’re not going to give you miss information, they’re going to point you in the right direction.
But then we’re only working with what you already have. So now when we have LoanSense as this other expert, and we’re all working together now, so we can say, “Yes, we help you qualify for this much, and let’s reassess what your repayment plans are. Let’s make sure you’re doing the best thing for you and your family.”
You’re controlling your expenses or your payments the way that you want to, and you’re really setting yourself up for again, if it’s the Public Service Loan Forgiveness Program, you wanna do that the right way so that after you make 10 years worth of payments, you actually are successful in having that student loan balance forgiven because if it’s not done correctly, you’re gonna have challenges with that down the road too, right?
Catalina – Right, precisely. So what LoanSense does in our…
Obviously, we have a loan counseling session where we help individuals if they need specific questions answered, but we also have a filing service and our filing service goes all the way to liaising signatures with employers for the PSLF program, as well as making sure you’re on track to re-certify your income annually so that you can in fact access PSLF properly in your 10.
So, what a lot of people do is, number one, never forget to refile your income-driven repayment plan form because if not all the interest that’s been accruing, will capitalize and now your payments will jump, okay? Number one, that’s a huge problem.
Scott – Yup.
Catalina – The second thing is people think, “Oh, I filed my income-driven repayment form, that’s it.” In fact, the majority of people, even attorneys we’ve worked with, think that that’s it, there’s actually a second form your employer needs to sign. So what some people will do is, “Oh, I’ll go to HR tomorrow to sign it.
Oh, I’ll go to HR tomorrow to sign it. Oh, I’ll go to HR tomorrow. Oh, tomorrow, tomorrow.” Before you know it a year goes by, they never went to HR and they’re not qualifying these payments. So, what LoanSense does is we take away the barrier to go into HR and go to HR for you and most places within 72 hours, we have this paperwork signed, which automatically enrolled you.
As soon as we submit it within two to three weeks, you get your loans, if it’s not already with FedLoan, it’s transferred to FedLoan. And your time is now counting towards Public Service Loan Forgiveness so that when you’re 10 comes, you’re not scrambling for all your paperwork trying to get it figured out.
And the reason that’s so valuable and important is that people commit an atrocious number of filing errors. 71% of all people that try to get their loans forgiven committed minor paperwork errors that disqualified them in some way, shape, or form and we wanna prevent that.
Scott – So if you submit to us a bad proof of income, we can tell you, the servicer will not accept this, we can try to prevent as many errors from happening along the process so that by the time you’re 10 comes, you’re more financially successful.
So not only… we wanna help people obviously get a mortgage, but ultimately our goal is to really help you as a consumer of products, whether it’s a mortgage or consumer of education, whatever you consumed, that you best understand how these decisions will affect you in the long term,
Catalina – Yup.
Scott – and we’re there to partner with you to help you achieve those goals.
Catalina – Well, and that’s why I’m so excited about this partnership. I’m really excited that we found you and that we can expose our clients to these conversations with people that we know and trust. This isn’t something that you don’t know what’s behind it.
You may not talk to Catalina, but is her company, and you can hear the passion, and you know why we’re doing this. So this is something that we’re really excited about is bringing this resource and bringing this tool and really introducing people to LoanSense, and really understanding.
Again, we would love to get you into a home and start building wealth that way. But what we also wanna do is get you into the right student loan plan, so that you’re not spending more than you need to.
And if you’re eligible under the PSLF, that you’re getting that forgiven when you’re supposed to because that builds family wealth. It’s just better for everybody all the way around.
Scott – Right.
Catalina – So–
Scott – And it might help you gain access to funds that are paying. Maybe you can get 100,000 of forgiveness and you can use that difference for a down payment on a second house, you know?
Catalina – And have very good property.
Scott – Yeah.
Catalina – The point is is, don’t just know what your options are, right? And one final plug–
Scott – Yes.
Catalina – if you don’t mind, Scott, I’d like to put it in that I think really important that people don’t realize is a lot of people I see commit this error, not understanding that when they get married, right?
That getting married and how you file your income taxes, especially if you’re on any type of income-driven plan affects the amount you will owe. So, some people don’t understand that get married, file joint, and now they marry someone, their spouse makes the same or more income, and now there are two loans, repayment jumps from 200 to 600.
Scott – Yup.
Catalina – And they’re like, “Oh, my God, I can’t afford it anymore.” And it’s like they didn’t really understand what was gonna happen. And so LoanSense, we can help you with that too because you can enter information and understand what the future projections on your loans are gonna be, right?
And so, we’re here obviously for the mortgage process, as well as beyond so that we can help you achieve the greatest amount of forgiveness or affordability with your loan–
Scott – Yeah.
Catalina – so can do things like homeownership, buy a second home, build your wealth, and think about your future.
Scott – So again, you guys, anybody that’s watching this, the reason we do these videos is that Catalina and I are not trying to sell you anything, our businesses sell things, but we’re experts in our field. And we’re just here to explain to you why these things are important so that you can become empowered.
And I want you to making informed decisions about who you work with and how you move forward. And that’s why we do this because you get to anonymously listen in on this conversation, decide whether we know what we’re talking about or not.
And when you trust that we know that what we’re talking about, you can also trust that we’re gonna introduce you to a loan officer that is an expert in the student loan guidelines, and we’re gonna connect you with LoanSense which are experts at structuring, analyzing and putting you into the best student loan program that you can possibly be in. So, Catalina, this has been unbelievably valuable, I really wanna thank you for your time.
I wanna thank you for your partnership and your willingness to help the folks that come to this website, help ’em navigate these things. The fact that you’re working with us on this is huge.
Our goal here is to promote homeownership and build long term wealth through homeownership. And the one hurdle, the biggest single hurdle for most young home buyers right now is student loans.
So this couldn’t be more relevant. This couldn’t be more important, and I don’t think you could have a better solution.
Catalina – Thank you.
Scott – So I wanna thank you very, very much for being here, and maybe we will do some updates.
Catalina – Can I make one final comment about refinancing just really quickly?
Scott – Yes, ma’am.
Catalina – Yes, so the refinance marketplace that pushes you to refinance your student loans is gigantic. They spend millions of dollars in marketing, and they will market towards you all day long to refinance your student loans. Be very worried about refinancing your student loans because once you do that, you can never go back. You will have a cosigner.
Scott – Really?
Catalina – Yes, you will have a cosigner that will be liable for your debt even if you die in most instances. So, just be careful about refinancing decisions. I’m not trying to say refinance is never right, but just fully understand your federal options before refinancing because there could be irreversible repercussions to refinancing too early.
So just be really wary about it and don’t hear, “Oh, it’s for it’s three and a half percent interest… Or four and a half percent of interest instead of six.” And that you think that’s automatically a good option because you get loan forgiveness, your interest rate is effectively… Actually a negative interest rate because you’re getting forgiven, loans forgiven right?
And you can… So just be wary of anybody that tells you who finances the answer
Scott – Yeah. or consolidation is the answer.
Catalina – Or whatever they say is the miracle cure? Don’t believe it, be skeptical, get somebody that does a full analysis based on your current financial standing, because there’s no one size fits all answer for everybody.
Scott – Yeah.
Catalina – And we find that is certainly not it because it’s deprivatizing your loans without a way to reverse it. So, just be careful.
Scott – See, that’s just so important. I mean, the mortgage industry is the same way. When you get those phone calls and that direct mail, they don’t know who you are, they’re throwing out numbers that are not your numbers.
They’re not based on you, and they’re trying to make money off of you and again, that’s why we do this because I want people to know that there are people like you out there that they can have conversations with so that they can get accurate information.
You’re trying to point people in the right direction, you’re not making money off of refinancing people.
Catalina – Right.
Scott – You’re helping people structure their financial lives moving forward so that they’re in a better position to have more flexibility and quite frankly take advantage of all of that schooling. You don’t wanna spend all of your time paying back student loans, I gotta start benefiting from those degrees sometimes moving forward. And hopefully,
Catalina – Yeah.
Scott – you’re gonna make it go faster. So, thank you, Catalina. This has been very valuable. I don’t think this is
Catalina – Thanks.
Scott – the first time we’re gonna have conversations like this. Every single day I get feedback and questions from consumers around this topic, so I think we should do this again.
Again, so people can listen to the types of things we talk about, understand the perspectives that we’re coming from and know that we’re not trying to get anything out of you, we’re just sharing this information so that you can make more informed decisions.
And with that, hopefully, we will be talking to any of you anywhere where you’re seeing this video, whether it’s on YouTube or on the website, there will be links in there to contact us, to ask more questions to help guide you to the next step.
And I wanna thank you very much for being here, and we will see you next time.
If you would like to be introduced to someone that I know and trust to talk about a new purchase or refinance loan, click on any of the graphics in the sidebar or any “Find the Right Lender. Find the Right Loan” link in the article.
If you want the truth about interest rates, home values, and what’s going on in the market, Josh Lewis, Broker/Owner of BuyWise Mortgage, a California Mortgage Broker, is one of the smartest people I know!
Josh does a weekly mortgage market update that many are finding essential to making informed decisions about one of the biggest and most important investments you and your family will make.
If you have questions about this article, please ask your questions or leave your comments below.
About the Author
Do You Have Questions About Qualifying?
Find a Mortgage Expert Near You
Find a Mortgage Expert by State