Buy a Home with Your Zero Payment ($0) Student Loan
Income Based Payment
It is not uncommon to have a zero payment ($0) on a student loan that is neither deferred or in forbearance.
As of 2015, a homebuyer with student loans is no longer able to ignore a loan that is not required to be repaid.
The guidelines were initially intended to require the lender to apply a payment to the student loan when calculation your debt to income rate if the loan was not in a repayment status.
An unfortunate victim of these new guidelines are the income based payment programs that many homebuyers have. Finding a lender that understands how to qualify a homeowner with student loans is hard enough.
As soon as you tell your lender that you have a zero payment on your student loan, or try to explain to them that you have a PSLF program, many loan officers are telling homebuyers that they do not qualify for a home loan, and that you must use 1% of your student loan balance when calculating your debt to income ratio.
This is simply not true.
Zero Payment ($0) Allowed
Both Fannie Mae and Freddie Mac have provided written guidance to loan officers and lenders that state that they will accept a zero payment ($0) for qualifying for a home loan as long as your student loan is in repayment.
If the zero payment shows up on your credit report, you will have to produce a statement from your student loan lender that states that your loan is not deferred or in forbearance.
You will not find this clarification in any written guideline from Fannie Mae or Freddie Mac, and it is unlikely that they will put this clarification in writing. This is where lazy or inexperienced loan officers will go wrong by telling you that you must use 1% of the your total loan balance as a payment.
What Your Loan Officer Doesn’t Know
Most homebuyers do not understand that what your loan officer doesn’t know is the biggest reason why you’re being told no.
There are several hurdles that you have to jump before you can get an accurate answer about how your student loan is going to be calculated. The first hurdle is your loan officer.
I’ve been in the mortgage business for close to 20 years now, and if I had a dollar for every time an inexperienced or ignorant loan officer gave bad information to a homebuyer, I could probably retire.
Mortgage underwriting guidelines change quite often, at least several times a year. New guidelines are added. Old guidelines are discontinued. Old guidelines are modified because it was determined that the original guideline was flawed when it was released.
This is exactly what happened when Fannie Mae and FHA updated their student loan guidelines in 2015. Many loan officers saw the initial guidelines that require a fully amortized payment that must be reported on your credit report, and they assumed that there were no exceptions.
If your loan officer made this assumption, or did not keep up with all of the changes, they could be, and probably are giving you misinformation because they never bothered to do their homework before turning you down for a home loan.
Lenders Not Following Guidelines
Just because Fannie Mae, Freddie Mac, FHA, VA or USDA publish an underwriting guideline, it doesn’t mean that a lender must follow those guidelines to a the letter. Lenders are allowed to add additional, more strict requirements on top of published guidelines.
These additional guidelines are called “overlays”. You will find the most overlays with the lenders that do the most advertising on television, radio, and the biggest offender, your local bank or credit union.
The reason why these companies have so much money to spend on advertising is that they only take the easiest loans, and choose not to help anyone that does not fit into their tight little box that is their perfect loan customer.
Even if your loan officer has done their homework, and knows that you should be able to qualify, there is still a chance that the lender they work for has taken a stance contrary to the written guidelines published by the investor.
Student Loan Questions Answered
All lenders are not created equal. Most of the readers that find this site because they’ve been researching solutions to challenges, and have been told 10 different things by 10 different loan officers.
We’ve created this resource to help you sift through the endless opinions and articles that may, or may not directly answer your question correctly.
There are several ways to ask questions, and get expert opinions on this website.
- Submit a Question: On the bottom of this page, you’ll see a prompt that allows you to ask questions. These questions come directly to me, and are answered very quickly.
- Leave a Comment: Below every article is the option to leave a comment or question. We see these comments and questions in real time and the always answered, usually pretty quickly.
In addition to researching your questions and providing you with expert advice, I may be able to introduce you to a lender friend that I know has experience with your specific situation and can help.