Can I Buy a Home with IBR Student Loans and 4% Down Payment?
I have a question here from Chet. Chet asks a really good question. Chet has student loans and he’s on an income-based (IBR) repayment.
It looks like initially, he applied or his lender tried to put him into an FHA loan, and throughout the process, the loan officer, who did not have any experience with student loan guidelines, realized that you cannot use an income-based repayment on an FHA loan.
You must use either a payment that’s going to fully pay off the loan at the end of the term or you have to use 1% of the balance of the student loans.
It looks like Chet got through the process here and then he was declined, so he’s looking for options and he wants to know if a Fannie Mae loan will help him because he has income-based repayment.
He has an IBR payment of only $48 on his student loans and he only has 4% down payment. So Chet’s asking if Fannie Mae has a loan program for that.
Chet, the answer is absolutely yes. Now, Fannie Mae has a … First of all, Fannie Mae or Freddie Mac are both options if you have an income-based repayment.
Both Fannie Mae and Freddie Mac guidelines are conventional underwriting guidelines.
For the most part, 90% of Fannie Mae, Freddie Mac are the same. But there are some differences in the underwriting guidelines. Now, also, both Fannie Mae and Freddie Mac have loan programs that will allow as little as a 3% down payment.
Now, FHA is 3 1/2%, but if you use Fannie Mae’s HomeReady program or Freddie Mac’s Home Possible program, you can put as little as 3% down.
And both Fannie Mae and Freddie Mac allow you to use your income-based repayment or your IBR payment when calculating your debt to income ratio.
Now, there are guidelines for the HomeReady and the Home Possible programs to qualify for the 3% down payment. You can qualify for that in one of two ways.
The first way is there are income limits based on the county you’re living in. You can go online. It’s public information. You can look up HomeReady income limits or Home Possible income limits.
You type in the address to the property that you’re looking for and it will tell you the income limits. Now, in some areas of the country, a lot of areas of the country, there are no limits in what’s considered a low to moderate income area.
If you’re in a low to moderate income designated area, then there are no income limits and you can automatically qualify for … Well, you can automatically be eligible for either the Home Possible or the HomeReady program.
So to answer your question, 100% yes, income-based repayment you can use either Fannie Mae or Freddie Mac. You only have a 4% down payment and that’s no problem if you are eligible for either the HomeReady or the Home Possible program.
Again, there are some income limits, but a lot of areas there are no income limits. You just have to go online, find the income limits, and type in your address and it’ll tell you what your income limits are.
More importantly, you want to work with a lender like us or some of the people that I know, that I could introduce you to, across the country that are experts at qualifying for a mortgage with student loans.
So a really, really good question, Chet. I hope we got you back on track and got you into your home. Thank you so much for your question. I hope this helps.