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Freddie Mac IBR student loan payment calculation updated in January 2018

Freddie Mac Stops Allowing $0 on IBR Student Loans

Qualifying for a mortgage with income based student loan payments just got a little harder.

  • Freddie Mac stops allowing $0 payment when calculating debt to income ratio
  • Fannie Mae is “last man standing” for allowing $0 IBR payments on mortgage applications

Freddie Mac announced on October 18th, 2017 that they are updating the way that payments are calculated on IBR student loan repayment plans when trying to apply for a mortgage to buy or refinance a home.

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2017 Freddie Mac IBR Guidelines

2017 Student Loan in Repayment

When a monthly payment is not reported, your lender must obtain documentation verifying that the loan is in repayment and what payment is required per the terms of your loan.

For mortgage applicants that have an income based repayment plan with a payment of $0, your lender only needed to verify that the loan is indeed in repayment, and many lenders would allow you to use the $0 payment when calculating your debt to income ratios.

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2017 Student Loan in Deferment or Forbearance

If no monthly payment is reported on the credit report, and no payment is required on an outstanding student loan, 1% of the outstanding balance will be used as the monthly amount when calculating your debt to income ratios on your mortgage application.

NEW – 2018 Freddie Mac IBR Guideline

2018 Student Loan in Repayment

Effective January 18th, 2018, Freddie Mac will update it’s automated underwriting system, LPA (Loan Products Advisor) to take a more conservative approach to calculating IBR payments on student loans when applying for a mortgage.

If you in an income based repayment plan that is currently in a repayment status (not deferred or in forbearance), lenders must now use the greater of the actual payment, or .5% of the original loan balance or outstanding balance as reported on the credit report, whichever is greater.

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2018 Student Loan in Deferment or Forbearance

If no monthly payment is reported on the credit report, you must use 1% of the original loan balance or outstanding balance as reported on the credit report, whichever is greater.

2018 Student Loan Forgiveness Guidelines

Student loan forgiveness programs like PSLF (Public Service Loan Forgiveness), student loan cancellation, discharge and employment-contingent repayment programs were not specifically addressed in previous versions of Freddie Mac IBR guidelines.

Updated 2018 guidelines will allow lenders to exclude the student loan payment from your monthly debt to income ratio if you can document the following:

  • The student loan has ten or less monthly payments remaining until the full balance of the student loan is forgiven, canceled, discharged or in the case of an employment-contingent repayment programs, paid, or
  • The monthly payment on a student loan is deferred or is in forbearance and the full balance of the student loan will e forgiven, canceled, discharged or in the case of an employment-contingent repayment program, paid at the end of the deferment or forbearance period.

AND

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  • You currently meet the requirements for the student loan forgiveness, cancellation, discharge or employment-contingent repayment programs, as applicable, and the lender is not aware of any circumstances that will make the Borrower ineligible in the future.

Student Loan Paid by Others

If your student loan payments are being made by someone else, and you can provide your lender with 12 months of cancelled checks from the account of someone not on the loan application, you can exclude your student loan payment from the debt to income calculation.

Contingent liability guidelines have recently been updated by Fannie Mae and Freddie Mac to allow you to exclude any debt paid by others as long as you can document it.

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This will not change how your payments are calculated if your loans are deferred or in forbearance, but might help if you are in repayment.

Fannie Mae to the Rescue?

In early 2017, Fannie Mae updated their guidelines to change the way they look at income based repayment plans for student loans.

Fannie Mae took the stance that Freddie Mac had up to that point to allow you to use any payment reported on the credit report, as long as the loan was not deferred or in forbearance.

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This means that Fannie Mae will still allow you to use your IBR payment as reported to the credit bureaus, even if that payment is zero.

Get Your Questions Answered

If you are like most people that visit this website, you’ve got a mortgage problem or an unanswered question and you’re having trouble getting answers.

We are here to help you get the right answer, the first time, and connect you with an experienced loan officer that can help if necessary.

Asking Your Question is Easy

You can Ask a question here, and a mortgage professional from our Expert Network that specializes in student loan guidelines will get back to you within hours.

You can also ask any questions you have about these programs in the comments section below.  I will be instantly notified and typically answer questions very quickly.

About Your Expert

Scott Schang

As a 19 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

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  • Kim says:

    Hi. This post has me a little confused.

    Here’s a little details to help you help me. I am 34 years old, single. I am looking to purchase a home asap. Two things are holding me up 1-my credit score and 2-my debt to income ratio.

    My credit score was very low do to old collection and charge off accounts due to bad decisions I made in my 20s. I finally got a grip and paid off most of the collection accounts except for one which a personal loan for$900. I have been reaching out to get them to settle and/or pay in full to delete the account to no avail. So my question is, would settling and getting my account marked as settled with a 0 balance increase my score or will it only increase once the account is deleted.?
    As for my student loans, I have close to $70,000 in student loans which were all in deferred status for another 2 years until earlier this year. I took my student loans out of deferment after reading a post from you all earlier to would help my debt to income ratio. I now am on a IBR for $200 a month for all of my loans total. My question is, will that $200 apply or the actual loan amount of $700+ with this new rule? Also, is Freddie Mac and Fannie Mae one in the same or does one handle conventional loans and the other does FHA loans? Any help in trying to understand that would be greatly appreciated.
    I am trying to figure out the best move to make with my score and my debt to consider the time frame I can apply for a mortgage.

    I currently make $56K a year. I also receive $15K a year in child support. I have a car monthly payment of $390 a month and a credit card bill that is 0 balance at this time. My car will be paid off in 10 months so I am sure that will not count in my debt to income but my student loans surely well so I want to see what is the best route.

    Thanks

    • Hi Kim,

      Really good questions. If you’ve recently paid off old collections or charge offs, it’s going to make your credit scores drop temporarily. In most cases you should not pay off old collections and charge offs, but if you already have, you’re in good shape moving forward.

      Building good credit is just as important as avoiding bad credit, so there might be an opportunity for you to get your scores up a little faster by doing that. (I can point you in the right direction for that) It sounds like you might need more revolving debt.

      As far as the income based payment, both Fannie Mae and Freddie Mac will use the $200 payment. After January 18, 2018, Freddie Mac is going to change their guideline to require that the payment be .5% of the outstanding balance. Fannie Mae is going to be your best option here.

      Ok, back to the credit part. Are you working with a mortgage professional or trying to do this all on your own? If you’re not working with someone that does this for a living, you should be.

      Having an experienced loan officer in your corner can make all the difference in the world, and it doesn’t cost you a dime. Most professional loan officers can help analyze your credit report and help advise on how to get your scores up.

      Finally, the lender can disregard your car payment if there are less than 10 months remaining on the loan.

      I am happy to introduce you to someone that I know and trust that can help guide you through all of this? If you would like an introduction, just shoot me an email to scott@findmywayhome.com and let me know what State you’re buying in.

      Hope this helps?

  • Nathalie Butler says:

    I’m currently on an IBR program with zero payments reporting. Will I be able to get approved for a mortgage loan or will they use 1% of my total loans?

    • Hi Nathalie,

      Fannie Mae Conventional, and some Freddie Mac lenders will allow for a $0 IBR payment when calculating your debt to income ratio. Freddie Mac is going to change their guideline on January 18th, 2018. It’s possible that many lenders will stop accepting a $0 on Freddie Mac underwritten loans now.

      Fannie Mae Conventional is the path you want to take. Unfortunately, not all loan officers or lenders are going to be familiar with these guidelines. If you talk to people that say it cannot be done, you’re just talking to the wrong people.

      If you would like, shoot me an email to scott@findmwywayhome.com and I can introduce you to someone that I know and trust that has experience with these guidelines. Don’t forget to include the State where you’re buying.

      Hope this helps?

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