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Student Loans

This page will tell you everything you need to know about qualifying for a mortgage with income based repayment plans on your student loans.

These more strict guidelines were first introduced in 2015 and continue to be updated as recently as January 2018.

How your payment is calculated when qualifying for a mortgage will depend on the type of financing you are applying for.  It's all in this guide.

Common Student Loan Repayment Plans

$0 IBR Payment

ALLOWED using Fannie Mae Conventional Guidelines

IBR Repayment

ALLOWED using Fannie Mae Conventional Financing

Deferred Payments

Many start an IBR plan to help qualify for mortgage

Waiting Periods will Vary Based on Type of Loan You Are Using

Loan Program

Debt to Income Ratio Calculation

Fannie Mae Student Loan Guidelines

These guidelines apply specifically to how the Fannie Mae DU (Desktop Underwriter) Automated Underwriting System will calculate your student loan payments.  A Fannie Mae loan is considered a Conventional Mortgage.

Deferred or Forbearance Payments

Fannie Mae does not allow an underwriter to ignore a student loan that shows up on the credit report that is deferred or in forbearance.

You must use a 1% of the reported or documented principal balance as a payment when calculating your debt to income ratio on the loan application.

Many will convert a deferred loan into a low or $0 payment (IBR) income based repayment plan.

Income Based Repayment

Fannie Mae will allow you to use the income based payment as reported on your credit report.  If the payment is $0, and can be documented as accurate, you can use $0 as the payment when calculating your debt to income ratio.

Freddie Mac Underwriting Guidelines

These guidelines apply specifically to how the Freddie Mac LPA (Loan Product Advisor) Automated Underwriting System will treat the calculation of your student loan payments.  A Freddie Mac loan is considered to be a Conventional Mortgage.

Deferred or Forbearance Payments


UPDATE:  Effective November 1st, 2018 Freddie Mac does not allow an underwriter to ignore a student loan that shows up on the credit report that is deferred or in forbearance.

You must use a .50% of the reported or documented principal balance as a payment when calculating your debt to income ratio on the loan application.

Many will convert a deferred loan into a low payment (IBR) income based repayment plan to avoid using the .50% calculation.

Income Based Repayment

UPDATE:  Effective November 1st, 2018 - IBR payments can be used if the payment is greater than $0.  If payment is $0, you must use .50% of the student loan balance as a payment.

If you are in an Income Based Repayment plan and your payment is $0, Fannie Mae guidelines will be your best option.

FHA Student Loan Guidelines

These guidelines apply to how the Fannie Mae DU (Desktop Underwriter) or Freddie Mac LPA (Loan Product Advisor) Automated Underwriting Systems running FHA will calculate your student loan payments.

Manually underwriting a FHA mortgage will not change these student loan guidelines.

Deferred or Forbearance Payments

FHA does not allow an underwriter to ignore a student loan that shows up on the credit report that is deferred or in forbearance.

You must use a 1% of the reported or documented principal balance as a payment when calculating your debt to income ratio on the loan application.

Many will convert a deferred loan into a low or $0 payment (IBR) income based repayment plan.

Income Based Repayment

FHA will not allow you to use the income based payment as reported on your credit report.  You must use 1% of the reported or principal balance of all of your student loans as your payment when calculating your debt to income ratio.

VA Student Loan Guidelines

These guidelines apply to how the Fannie Mae DU (Desktop Underwriter) Automated Underwriting System will calculate your student loan payments.  Manually underwriting a VA mortgage will not change these student loan guidelines.

Deferred or Forbearance Payments

VA does not allow an underwriter to ignore a student loan that shows up on the credit report that is deferred or in forbearance.

You must use the following formula to calculate a "qualifying payment" for any student loan that is not in repayment:

  • Principal or reported balance x 5% / 12
  • Example:  100,000 student loans x 5% = $5,000 / 12  = $416.67
  • $416.67 would be used as your student loan payment when applying for a VA mortgage.

Many will convert a deferred loan into a low payment (IBR) income-based repayment plan.

Income-Based Repayment

VA does not specifically say that you cannot use an Income Based IBR payment for calculating your debt to income ratios.  Here is an excerpt directly from the VA guidelines:

The lender must use the payment(s) reported on the credit report for each student loan(s) if the reported payment is greater than the threshold payment calculation above.

If the payment reported on the credit report is less than the threshold payment calculation above, the loan file must contain a statement from the student loan servicer that reflects the actual loan terms and payment information for each student loan(s).

The statement(s) must be dated within 60 days of VA loan closing and maybe an electronic copy from the student loan servicer’s website or a printed statement provided by the student loan servicer.

It is the lender’s discretion as to whether the credit report should be supplemented with this information.

USDA Student Loan Guidelines

These guidelines apply to how the USDA (GUS) Government Underwriting System Automated Underwriting System will calculate your student loan payments.

UPDATED 9-24-2019 - Temporary Modification of Section 11.2 of HB-1-3555 pertaining to Student Loans.

USDA has updated its guidance regarding the student loan payment requirement. The new guidance specifically affects the required payment utilized for Non-Fixed student loan repayment plans. 

  • Student loans. Lenders must include the payment as follows:

o    Fixed payment loans: A permanent amortized, fixed payment may be used in the debt ratio when the lender retains documentation to verify the payment is fixed, the interest rate is fixed, and the repayment term is fixed.

o    Non-Fixed payment loans: Payments for deferred loans, Income-Based Repayment (IBR), Graduated, Adjustable, and other types of repayment agreements that are not fixed cannot be used in the total debt ratio calculation. The higher of one-half percent (.50%) of the loan balance or the actual payment reflected on the credit report must be used as the monthly payment in the underwriter decision. No additional documentation is required.

The change—highlighted above—removes the requirement that non-fixed payment loans are calculated using one percent (1%) and inserts the use of one-half percent (0.5%) or the payment reflected on the credit report, whichever is greater.

Although temporary, it should be noted that RD/USDA intends to permanently incorporate the change into Chapter 11 of HB-1-3555 in the near future.

You must use a 1% of the reported or documented principal balance as a payment when calculating your debt to income ratio on the loan application.

Income-Based Repayment

USDA will not allow you to use the income-based payment as reported on your credit report.  

You must use 1% of the reported or principal balance of all of your student loans as your payment when calculating your debt to income ratio.

Jumbo Student Loan Guidelines

Jumbo loans are by definition a portfolio loan.  This means that the lender that writes the underwriting guidelines will define how student loan payments are calculated for your debt to income ratios.

It is not uncommon for Jumbo lenders to be more strict than conventional mortgage underwriting.  It is also not uncommon for there to be some flexibility as a result of compensating factors like loan to value, reserves, employment or credit history.

A loan officer that has a lot of experience with Jumbo mortgages will be able to pretty quickly offer you what options are available to them.

Keep in mind that because these guidelines follow the lender, different lenders may treat the status of your student loans differently.

Portfolio Student Loan Guidelines

A Portfolio loan is not a specific loan program, but represents a broader channel of loans that are underwritten by each individual lender.  

It is not uncommon for a portfolio lender to be more flexible than conventional mortgage underwriting.  It is also not uncommon for there to be some flexibility as a result of compensating factors like loan to value, reserves, employment or credit history.

A loan officer that has a lot of experience with niche investors and portfolio mortgages will be able to pretty quickly offer you what options are available to them.

Keep in mind that because these guidelines follow the lender, different lenders may treat the status of your student loans differently.

If your loan officer doesn't seem to know....This might be why!

In My Experience...

Not all lenders will follow Fannie Mae guidelines word for word.  Fannie Mae guidelines can be vague many times and leave the final decision to the lenders underwriter.

In cases where the lender chooses to impose a more strict guideline that what Fannie Mae might allow is called an "Overlay".  An overlay can mean that something requires an exception, increased fee or tightening of a an underwriting guideline.

Different lenders do treat student loans differently.  An inexperienced loan officer will also limit your access to your options.

If you're here because you've heard "NO", you're in the right place.  You're among friends.  Shoot us an question about your situation and we'll give you the right answer.

In most cases, I'll know an expert that has experience with your situation and can help!

Scott Schang
Founder, FMWH

FAQ's About Qualifying for a Mortgage with Student Loans

Can I buy a home with a $0 IBR student loan payment?

Until recently, Freddie Mac Conventional underwriting guidelines would did not specifically say you could not use a $0 payment, and I know of several lenders that would allow you to use a $0 when qualifying for a mortgage.

As of mid 2017, Fannie Mae came out and said that they would use your income based repayment, even if it's $0.  You only need to document that your loan is in a repayment status and that the payment due is currently $0.

Can I apply for an IBR plan to qualify for a home loan?

A lender is going to analyze your student loan status at the time you apply for a mortgage loan.  If you are in an income based repayment plan, you provide that documentation.

Only Fannie Mae conventional guidelines will currently allow you to use your income based payment no matter what the payment amount.

If you're eligible to put your student loans back into a deferment or forbearance status in the future, after you've closed on your home, you're free to do anything you wish. 

Can I qualify for a mortgage if I co-signed for a Student Loan?

Both Fannie Mae and Freddie Mac will now allow for what is called contingent liability. 

This rule says that if you can show cancelled checks to document that another party is making payments on something showing on your credit report, the payment can be excluded from your debt to income ratio calculation.

Fannie Mae recently updated their underwriting guidelines to allow you to refinance your home and pay off student loans without the cost of doing a cash-out refinance.

This is a great option if you're already thinking of reducing your interest rate or changing the pay off term of your loan.  Including the student loan debt will not add to the rate or cost of the loan.

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