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IBR Student Loan Payments with Mortgage

2019 Guide to Qualifying for a Mortgage with IBR Student Loans

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

UPDATE January 2019:  Student loans will continue to be a major topic, and we will follow it closely.  These guidelines are confirmed to be accurate in 2019.

UPDATE September 2018:  Watch my NEW video below about the current guidelines for buying a home with Student Loans.  Update includes NEW Freddie Mac guideline changes effective November 1st, 2018

Student loan guidelines have changed yet again.  This is your ultimate guide to understanding how these changes will affect you in 2018.

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.

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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.

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 a 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.

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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.

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 tail spin of misinformation.

Student Loan Guideline Changes Since 2015

  • 2 times for Fannie Mae Conventional Loans
  • 2 times for Freddie Mac Conventional Loans
  • 1 time for FHA Insured Loans
  • 2 times for VA Guaranteed Loans
  • 1 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.

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.

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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 a 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.

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

Speak to a Loan Officer About Your Student Loans

2019 Student Loan Guidelines Snapshot

Fannie Mae Conventional

  • Non-amortized Payment – Allowed, even with $0.00 payment – Updated April, 2017
  • Amortized Payment – Ok with all lenders
  • Deferred or forbearance use 1% of loan balance.

Freddie Mac Conventional – UPDATE Effective November 1st, 2018

  • Non-amortized Payment – May use payment as reported on credit report –Effective November 1st, 2018
  • $0 payment on credit report use .5% of loan balance –Effective November 1st, 2018
  • Amortized Payment – Ok with all lenders
  • Deferred or forbearance use .5% of loan balance – Effective November 1st, 2018

FHA Government Insured

Find Lenders that Specialized in Student Loans

  • 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

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.

Freddie and Fannie Swap Guidelines

Interestingly enough, Fannie Mae and Freddie Mac have since swapped positions on IBR payments as of the most recent update by Freddie Mac in February 2018.

Freddie Mac no longer allows for IBR payments, while Fannie Mae does since April 2017.  Fannie Mae will even allow an IBR payment with a $0.00 payment.

If you have an IBR payment that is equal to less than .5% of the balance of your student loan, Fannie Mae is your option for being able to use the payment as reported on your credit report.

UPDATE EFFECTIVE November 1st, 2018

Effective for Mortgages with Settlement Dates on and after November 1, 2018. Currently, student loans that are in repayment are subject to different requirements than those that are in deferment or forbearance.

Freddie Mac has reviewed their requirements for liabilities included in the monthly debt payment-to-income ratio, specifically student loan liabilities, and have aligned requirements for student loans that are in repayment, deferment or forbearance, providing one simplified approach for the calculation of student loan debt.

Previous requirements

Use the greater of:

  • The payment amount on the credit report
  • 0.5% of the original loan balance
  • 0.5% of the current loan balance
  • If the student loan is in deferment, use 1% of the loan balance
  • If the student loan is in forbearance, use 1% of the loan balance

New Requirements – EFFECTIVE November 1st, 2018

If the monthly payment amount is greater than zero, use the monthly payment amount reported on the credit report or other file documentation, or

If the monthly payment amount reported on the credit report is zero, or if your student loan is in Deferment or Forbearance, use 0.5% of the outstanding balance.

Freddie Mac’s automated underwriting system, LPA (Loan Product Advisor) feedback messages will be updated by November 1, 2018, to reflect these changes.

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 you 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 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 get you accurate answers.

You can get your questions answered by either Visiting our Expert Network HERE, or you can leave a comment or question below.

I answer all questions, and if needed, can introduce you to a professional, experienced loan officer that I know can help.

About Your Expert

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

  • Andreana Harris says:

    I love school and have accumulated approximately $120k in student loans. I have studied multiple fields but my income unfortunately, is not reflective of all my education. I am 55 and just now looking to buy my first home. However, the mortgage lender I am working with informed me that I will not get approved with being in an IBR program. I have to contact both lenders and ask them to change my repayments to a 1% of the total amount. That’s $1200!!! Impossible. I did not know any of this was an issue until now. Any Advice. I live in the Columbus, Ohio area. The mortgage company is Birchwood Credit out of NH.

    • Scott Schang says:

      Hi Andreana, I asked a friend of mine to reach out to you today because I’ve been on the road all day. I want to also answer your question here so that anyone else in a similar situation knows that there is hope!

      The lender you are talking to either does not know the guidelines or is only telling you one option and not all of your options. Unfortunately, this is very common.

      You can absolutely use your IBR payment if you applying for a Conventional mortgage using Fannie Mae or Freddie Mac underwriting guidelines. FHA requires that you use 1%, not Conventional.

      Hope this helps?

  • Sherrica Archie says:

    What is the difference in IDR and IBR plans

    • Scott Schang says:

      Hi Sherrica, this is a great question! A lender is not going to differentiate between Income Driven Repayment (IDR) and Income Based Repayment). They are going to look at whether or not the loan is in a repayment status, and if the monthly payment will pay off the loan at the end of a loan term or not.

      If the loan is paid off at the end of the term, it’s a fully amortized loan and you can use that payment for qualifying. With an IDR or IBR, only Conventional guidelines will allow you to use that payment when calculating your debt to income ratio.

      I can introduce you to a lender that has expertise with these guidelines if you want to shoot me an email to Please let me know what State you’re trying to buy in.

      Hope this helps?

  • Susanna Miller says:

    I purchased my home in 2010 in Florida. Since then, my equity has increased greatly. I have an IBR student loan status and so far lenders won’t touch my application for refinancing with cash out options. My current DTI is around 37% using my IBR calculations. Is there any hope for me and is it possible for lenders to use an amortized calculation?

    • Scott Schang says:

      Hi Susanna, I’m so glad you found us! Your IBR payment should not prevent you from refinancing your home, you simply have not found a lender that knows the guidelines…until now! I am going to send you an email introduction to a good friend of mine that specializes in helping folks with qualify for a mortgage if they have student loans.

      You should hear from Jim shortly! Hope this helps?

  • Cynthia D Smith says:

    Hello Scott,
    Thanks you for this informative information, I am also currently looking to get a mortgage loan in about a year, I am on the IBR Plan was looking to do the FHA but after reading this article I am going to probably have to go with the Conventional Loan is their someone you can recommend me to talk to in Georgia I am in Illinois, but relocating to Georgia. I talk with a couple of lenders no one mention this. Thanks again.

    • Scott Schang says:

      Hi Cynthia, yes, I have a really good friend in Georgia that has a lot of experience with student loan guidelines.

      I will make an introduction by email 🙂

      Hope this helps?

  • CS says:

    Hello Scott,
    Thank you for this article. This information is to hard to find and it should be criminal that people go through it! We are literally being robbed for going to school and helping to build the future this country told us to be!
    I’m literally in the situation described, with a $0 IBR as a federal employee on a forgiveness track, but my payments were lowered due to the shutdown. I am a few days from closing on a FHA loan and they hit me with my payments are too low! Now there is a scramble it wasn’t until I read your article, that I even had any clue why, but not sure what to do at this point.
    I’m open to any suggestions. Thank you again for the piece.

    • Scott Schang says:

      Hi CS, there are so many inexperienced loan officers in the industry today that it just makes my head spin. FHA requires that your student loan be paid off at the end of an amortized loan term, or you have to use 1% of the loan balance as a “payment” when calculating your debt to income ratios.

      Your only option for using the $0 IBR payment is Conventional financing using Fannie Mae or Freddie underwriting guidelines.

      If your lender can pivot you into a Conventional loan, you should be ok.

      If they cannot, or if you would like an introduction to a professional, and experienced loan officer friend of mine, shoot me an email to and let me know what State you’re in. Also, are you trying to buy or refinance your home?

      Hope this helps?

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