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IBR Student Loan Payments with Mortgage

2020 Guide to Qualifying for a Mortgage with IBR Student Loans

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

COVID-19 UPDATE:  Federally serviced student loans were put into automatic administrative forbearance until September 30th, 2020 as part of the CARES Act, signed into law on March 27th, 2020.

If your payments were automatically withdrawn from your bank account, that has also been suspended.  If you are trying to qualify for a mortgage and you have an IBR or IDR payment plan, forbearance could present a problem.

If this happens to you, it’s not difficult to correct.

Additional Reading: COVID-19 Student Loan forbearance, Wil it Hurt My Home Loan Approval?

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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.

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.

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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 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.

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.

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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.

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.

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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.

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.

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Borrowers using an 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.

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 the loan balance.

Freddie Mac Conventional – UPDATE Effective January 2020

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

FHA Government Insured

  • 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

  • Kendal Emery says:

    I sent you an email. I was working with one of the big box lenders, everything was going along swimmingly when all the sudden I was no longer pre-approved (Which according to CHFA is a guaranteed loan) well looks like it isn’t that guaranteed now does it. I have over 113k in student loans, been on IBR for years, making payments faithfully. I have no money for a down, as I was going through CHFA for down payment assistance. What am I supposed to do now. I was set to close on June 12th, that’s about 15 days from now.

    • Scott Schang says:

      Hi Kendal, I replied to your email as well. Here’s what I sent you. I forgot to mention it, but CHFA should have a conventional first mortgage option. That would be your solution.

      Hi Kendal,

      I’m so sorry to hear about this. Unfortunately, your loan officer does not have any experience with student loans…this could have been addressed and avoided from the beginning.

      That being said, let’s talk about solutions.

      It sounds like you are approved for an FHA loan? FHA has always required that your payment be fully amortized to pay off the balance at the end of the loan term, or you have to use 1% – which blows up your approval.

      There are 2 solutions currently, and they both require that you get approved for a conventional loan. If you can get approved for a Fannie Mae or Freddie Mac conventional loan, you may use the IBR payment when calculating your debt to income ratio.

      Another thing to watch out for right now is that all federally serviced student loans were put into administrative forbearance until September 30th, 2020. If your loans are in forbearance now, your only option is a conventional loan using Freddie Mac underwriting guidelines, which allow for only .5% calculation if your loan is deferred or in forbearance.

      I have friends in Colorado that have a lot of experience with student loan guidelines. I can make an introduction if you would like?

      Does this help?

  • Juanita J says:

    I am currently under contract on a home and I just found out from my underwriter that something has come up with my FHA loan. I live in Louisiana. I have been under IBR payments on my 72,000 student loan debit for a few years. My lender said that I do not qualify for the home loan through FHA as my student loans isn’t amortized and it was suggested that I change to a different repayment plan that does amortize. The problem is I am being told by Navient that I will be required to place the loan in forbearance for 1 month in order to make the change. Lender is saying that I should not do that because the forbearance is a negative event on the credit report and will prevent me from being eligible for a FHA for 12 months following removal from forbearance. Navient “expert” says do it anyway because the bank will not know about it until after closing and it would be too late by then.

    Would changing to a graduated repayment plan be sufficient to show amortized info that the bank is requesting?

    Is there a lender that will work with the info from NAVIENT and approve this loan so that my child and I don’t end up homeless on the 15th? (the day we were supposed to close the loan).

    • Scott Schang says:

      Hi Juanita, I’m so sorry to hear about your challenges. It really makes me angry that loan officers put people like you in this situation. FHA has never allowed anything other than a fully amortized payment, or you have to use 1% of your loan balance when calculating your debt to income ratio. Your loan officer should have known this. You were never qualified for the FHA loan that they have you in. FHA will not accept a graduated-payment as fully amortized.

      Ok, so that said, let’s look at solutions. A Conventional loan that follows Fannie Mae or Freddie Mac guidelines allow you to use your income-based repayment plan. That’s where you should have started. Do you know if your loan officer looked at this option?

      I do not know the details of your situation, but Conventional financing allows you put as little as 3% down, which is even less than FHA. The worst case is a 5% down payment.

      Here is my last thought, and it’s a long shot, but it might work. If you can qualify for fully amortized payment for FHA, if you can get a letter from Navient stating what that payment would be, you should be able to get that signed off by an underwriter.

      If none of these options will work, and you think that you’ll miss your 15th close date, the only other thing I can offer is to introduce you to a loan officer that has experience with these guidelines for a second opinion.

      If you would like a second opinion, shoot me an email to scott@findmywayhome.com and just let me know what State you’re buying in.

      Hope this helps?

  • Nicole says:

    Hello,

    I am currently under contract on a home and just found out from my underwriter that something has come up with my FHA loan. I am currently under the public service loan forgiveness program. I’ve been in this program for 2 years making IBR payments on my 240,000$ student loan debt. With the PSLF, after making 10 years of qualifying payments, the remaining student loan balance will be forgiven. My mortgage broker said that I do not qualify for the home loan through FHA as my student loans isn’t amortized. My question is, with proof from the student loan company that after my 10 years of payments are made the balance will be forgiven, does that disqualify me from the FHA? Are there any ways around this? There have to be more people out there who are part of PSLF that have an FHA loan.

    • Scott Schang says:

      Hi Nicole,

      I’m so sorry to hear about your challenges, it sucks that your loan officer let you get this far into the process because they didn’t know the guidelines.

      The PSLF program specifically is not the reason you’re being denied, it’s the income-based repayment plan that you’re on until you reach the maturation of the forgiveness program. 

      FHA’s rules have always been that if the payment is not fully amortized, you must use 1% of the balance when calculating your debt to income ratio.  You never qualified for the FHA loan from day 1.

      I am curious about why you don’t qualify for conventional financing.  If it’s the same loan officer that let you get this far already, I’m not sure I would trust them to get you out of this situation.

      It is true that both Fannie Mae and Freddie Mac conventional underwriting guidelines allow you to use any payment (even $0) as long as you can document that the loan is in repayment status and not in forbearance or deferment.  This brings up another potential challenge, all federally serviced student loans have been automatically put into administrative forbearance until September 30th, 2020.

      What State are you in?  I have friends that are very experienced with these guidelines all over the Country.  I’m really thinking that a second opinion would, at the very least, help you to understand why you’re not being approved for a conventional loan.

      Hope this helps?

      • Liz P. says:

        I’m in the exact same boat! I am a teacher and have IBRP to qualify for PSLF. I am trying to buy my grandmother’s house, which is a non-arms length transaction and also causing some problems. I have gotten turned down by 2 lenders qualifying me at 1%. I am now on a third who said she could try to qualify me for Fannie Mae which will allow for 0.5% of the loan. The fact that everyone is in forebearance (even if we may not have asked for it!) is causing a problem as well. I will be looking into calling my lender to set up payments to see if that could help. I appreciate this site and makes me feel better knowing I’m not the only one in this situation!

        • Scott Schang says:

          Hi Liz, there are definitely several layers of complication qualifying for a mortgage with student loans right now. You’re also right that all federally serviced student loans were automatically put into administrative forbearance until September 30th, 2020.

          You will be required to use the 1% calculation as long as that loan is in forbearance. You can call the student loan lender and ask to be removed from forbearance – and you’ll have to make sure your payments are being made on time.

          The lender that told you Fannie Mae allows .5% is kind of right, it’s Freddie Mac, not Fannie Mae. If you qualify using .5%, that’s probably your best option. That way you don’t have to mess around with the forbearance stuff.

          If you’re not 100% committed to a loan officer yet, I’m happy to introduce you to someone that has a lot of experience with these guidelines. If you would like, shoot me an email to scott@findmywayhome.com, and let me know what State you’re buying in.

          If you do get your loans back in good standing, Fannie Mae conventional is probably where you would start, but Freddie is also an option, regardless of your IBR payment (even if it’s $0).

          You’re definitely not the only one in this situation! Hang in there, we’ll get through this soon enough 🙂

          Hope this helps?

  • Cathy H. says:

    My husband and I were currently in the FHA loan process only to find out that his student loan income based repayment program (that he just set up from being deferred to $162/month) would not qualify us. We had just found out from our lender about the 1% principle balance that would have to be used on his $230,000 student loans which put us way over the DTI requirements. We are continually working on his credit score since it is currently 640. We want to pay off some of our credit card debt that combines to about $18,000 to hopefully help his score. I have been reading a lot of the comments and it sounds like you are recommending a conventional loan? We could probably save for 3% down. Would this put us in a better position to buy? I have also been doing some research into Fannie Mae backed mortgage. Still needing a lot more info. We live in Billings, Montana. Would love your thoughts!

    • Scott Schang says:

      Hi Cathy, I’m sorry to hear about your challenges. Your loan officer should have known to advise you differently regarding your student loans.

      A conventional loan using Fannie Mae or Freddie Mac guidelines will allow you to use your IBR payment for qualifying. Both Fannie and Freddie have 3% down payment programs available. The biggest difference between FHA and Conventional is that FHA allows you to carry more credit card debt, and is usually a lower rate and payment if your credit scores are below 700.

      I have friends all over the Country that have extensive experience with the student loan guidelines. If you would like, email me at scott@findmywayhome.com and I can make an introduction to someone that I know and trust.

      Hope this helps?

  • Jeremy Kirkendall says:

    I would love some help. I am working on purchasing a home and I do not have a great credit score and therefore we are going FHA. My IBR is 478 a month and my income is 77000 yearly. My other expenses are a total of 1066 plus the 478 from my IBR. The trouble I am really running into is the fact that my back end DTI is so high because FHA takes 1 percent of my total student loan debt which is 1342. You get the picture. Any advice would be greatly appreciated. After reading the article I will be calling my loan service to learn what my amortized amount would be but any other suggestions would be great. Thanks for the article.

    • Scott Schang says:

      Hi Jeremy, unfortunately, FHA will only allow a fully amortized payment (that pays off at the end of a fixed term) or you have to use 1% of your loan balance when calculating your debt to income ratio.

      It sounds like you know that conventional financing will allow you to use your IBR payment, and yes, conventional financing likes higher credit scores. If you can get your credit score over 660, conventional can be an option for using your IBR payment to qualify.

      On a side note, if your student loans are federally serviced, and if you had automatic payments set up, your student loans are going to be in administrative forbearance until September 30th. This means that whether you use FHA or Conventional before September 30th, you’re going to get hit with that 1% calculation.

      If you are going to buy sooner than September 30th, you have to call your loan servicer and ask them to take you out of forbearance and make your payments manually each month.

      Hope this helps?

  • IvyL says:

    OMG I’m almost crying here! I am reading these stories and hope they are true. I have been struggling for the same reason. I have a huge student loan debt and each lender has told me a different thing. The last one that was a bit more hopeful said I needed to have a IBR of $0. I can’t. The one I can get for $400.00. s it still possible?

    • Scott Schang says:

      Hi Ivy, it’s true! You can use your $0 IBR payment when you are applying for a Conventional loan using Fannie Mae or Freddie Mac guidelines. It is not unusual that loan officer do not know these rules, or that lenders choose to ignore them.

      If you would like an introduction to someone that I know and trust and has experience with these guidelines, shoot me an email to scott@findmywayhome.com and let me know what State you’re trying to buy in.

      Hope this helps?

    • Mona phillips says:

      I have a large student loan from 31 years ago. Never have paid on it and am on ibr with zero payment.with the help of this site and finding a lender that would really listen, i got my credit score up, lowered my debts and i just purchased my home!! Thank you Scott and all!

  • Rebecca says:

    I had no idea there were so many others like me struggling to get approved for a loan while in the IBR plan. I’m so discouraged and saddened that my dreams of finally owning a home are stonewalled by this. I wold appreciate any advice you could give me.