We’ve had a ton of questions from folks, looking for information about their Student Loans, and how the payments on the deferred student loans, and IBR Student Loan payments will be looked at when they are applying for a mortgage. Unfortunately, these questions are pretty difficult to answer in any “broad” way… because every mortgage program looks at both Fixed Payment Deferred Student Loan payments, and Student Loan IBR and Mortgage Qualification in 2018 a little differently.
I’m updating this post on November 3, 2017 (JUMP TO LATEST Freddie Mac UPDATE REGARDING STUDENT LOANS)
Prior to this update, there were many different options for those who wanted to buy a house when they had Student Loans in a deferred status, or IBR or PAYE. However, over the last 12 months, the options for buying a house for those with Student Loan debt has become less complicated, if not harder.
Because of that, as you read the more than 300 questions in the comments, you will see varying answers, as the guidelines changed over the last 3 years.
The updated information contained here is as accurate as I can make it regarding Student Loan (IBR) and Mortgage Qualification.
I decided to use some of the actual home buyer questions, and situations we’ve talked to people about – in an effort to answer Student Loan IBR Mortgage Questions.
Student Loan IBR and Mortgage Qualification 2018
Student Loan IBR and Mortgage Qualification is based upon the Mortgage you are applying for. Our experience, is that so many people have Student Loans, that it’s really not a “red flag” to underwriters, it’s just another obligation that we have to present in the debt to income ratios. In some limited cases, we do NOT have to count Deferred Student Loans – in other situations we do.
QUESTION: Eleanor, Do you guys understand how the federal student loan income based repayment plan works?? My wife and I are both employed but have substantial student loan debt. My wife is working as a Teacher, and because of the low-income area she is in, her Student Loan will actually be “forgiven” by the State once she fulfills her commitment. Our credit reports do not reflect our actual monthly student loan payments because we are on the IBR plan. What can we do to get our Government Mortgage loan approved? I have the letters from the creditors to show what our payments actually are.
ANSWER: With VA Loans, the Underwriter will take the actual payment from documentation we provide for the IBR payment. If the Student Loan has a 18 month deferment or more AT THE TIME OF CLOSING (which is the hat-trick) , we don’t have to count the debt at all. If the deferred student loan has less than 12 months left on the deferment – then we use 1% of the balance. READ: For Most Lenders you will need at LEAST 12 months after closing to be documented as DEFERRED STATUS.
If we can provide supporting documentation from the creditor to show future estimated monthly payments, we can use that figure instead of the guideline. Fortunately, you have that documentation. VA Loans have no down payment requirement for those Veterans that qualify.
VA LOAN RED FLAGS** MANY LENDERS (however) use the same underwriter for VA Loans and FHA Loans. Because of this, MANY UNDERWRITERS will use the same Guideline for FHA Loans and VA Loans just like they were the same program. MY ADVICE is that you ASK the lender how their underwriter treats IBR payments on a VA Loan. We just had a deferred loan that shows on the Credit Report that it’s deferred until June 2019, and the Underwriter did NOT make us count any payment in qualifying the Veteran. So ASK!
FHA LOANS AND USDA HOME LOANS** Since June of 2016 – IBR Payments and PAYE Student Loan Payments must be calculated by FHA and USDA Home Loan Underwriters as 1% of the Balance owed. If we can establish a NON IBR payment, we can count the ACTUAL payment on ALL Student Loans in qualifying a borrower for a mortgage.
I’m going to say that again…if we can establish the payment amount that is from a LEVEL payment plan (so higher than any IBR payment), we can count the actual payment, and not the 1%.
However, if we can NOT establish a payment that is a NON IBR payment, then we will be required to count a payment of 1% of the balance owed for all FHA and USDA Home Loans.
For IBR Student Deferred loans – which have payments that are subject to CHANGE based upon your income – starting 12/1/14 we are required to count 1% of the balance, regardless of deferment status. You might read somewhere else on the Internet that we can count $100 in payments – this is outdated information!
Student Loans that have MORE than 24 months before payments become due will be considered in deferment by USDA Home Loan Underwriters (as best we can tell) and will NOT be counted against you. This is ONLY for USDA Loans where Student loans have a FIXED monthly payment showing on a credit report.
See the Actual New Guideline as showing from the NEW USDA Home Loan / Student Loan IBR and Mortgage Guidelines
“Monthly payment amounts listed on the credit report, which are less than one percent of the outstanding balance may be used when evidence from the loan “Servicers” is obtained indicating; 1)the applicant is on a fixed repayment plan not subject to change under the terms of the current agreement and 2) and the monthly payment amount due. Fixed payments have a monthly amount that is not subject to change through the fixed repayment time frame.”
QUESTION: I am single, and recently qualified for the IBR program. I owe a six figure balance to Sallie Mae/Dept of Education for my chiropractic school education. For the next 12 months my payments are zero dollars. I recently applied for a mortgage since my payments for a house will be cheaper than rent (and I would like to get started on my life) but denied – because I couldn’t tell the mortgage company exactly what my payments will be when they eventually start.
I feel like if Sallie Mae needs you to re-qualify every single year for the IBR program, does anyone ever get approved for mortgages while on IBR? I know my income will never increase to the point that I will pay more on the IBR plan than the standard plan since my payments on the standard plan would be $3200 a month – which is more than I will make just 2 years out of school…Any suggestions are definitely appreciated.
ANSWER: Many borrowers have this problem. If we can establish an IBR Payment amount on a Credit Report, we can qualify you on that payment for a Conventional Fannie Mae loan. Fannie Mae is now (effective January of 2018) the only alternative for those who are buying a house with student loan debt in IBR Status. Fannie Mae CHANGED their Guidelines on May, 1 2017 and we now calculate your DTIs based upon the payment on the credit report. AS LONG AS IT IS NOT ZERO… we must have an actual payment on the report.
The Freddie Mac program does NOT offer a down payment assistance component at this time. They do offer a program with a 3% down payment. HOWEVER, the Freddie Mac Loan will accept ratios up to 50%!! THIS CHANGE FROM FREDDIE goes into effect in January. Lenders will likely begin underwriting to the new guidelines (requiring a level payment OR .5% of the student loan debt be counted in your ratios by December of 2017).
The Fannie Mae loan does offer a community “Grant” program. It’s available through Housing Finance Agencies all across the country (there’s one in each state), and they will provide a forgivable loan for the down payment. There’s no payment required and no interest accrued. Once you live in the home the specified time (it varies by program) then you owe nothing back. THE DOWN SIDE IN NC is that the MAXIMUM DTI is currently 43.00000000%. That’s tough. We understand that is suppose to change later this fall. The typical back end ratio limit for a Fannie Mae loan is 50.0000%.
Obviously, different story for FHA and USDA Home Loans. In extreme cases, we have seen people go OUT of the Student Loan IBR and mortgage loans were approved. It’s our understanding (but you will need to verify this – maybe you could leave us a comment below and let us know what you find?) that you can go out of the IBR Student Loan Program for a period of time, negotiate fixed payments that you can afford – and we can use that FIXED payment to qualify you for the mortgage… can you go BACK to the IBR repayment plan in the future if your circumstances change? I don’t know the answer to that. I only know that for a FHA Loans or a USDA Home Loan, the ever-changing IBR Student Loan Plan forces us to use 1% of the outstanding balance.
QUESTION: My mortgage broker told me that I HAVE to have documentation of what exactly my IBR payments will be for no less than 12 months from closing, however since IBR Student Loans are recalculated annually from my W2’s, they only reflect what they will be for the next 12 months from renewal. For example my documentation shows my IBR payments will be $0 from February 1st 2017 until February 1st 2018, after which it shows the maximum amount of $412, even though when I renew it in January of 2018, It will show $0 until 2019, and so on and so on. So unless I time a closing for exactly the time it renews, my credit report will never show my actual payments for 12 months past closing…. how do I make this work for Freddie Mac?
ANSWER: All IBR deferred Student Loans for Fannie Mae Conventional Loans, need to be out of deferment. We can’t simply qualify you at the number your Servicer SAYS will be your monthly payment ($412), and we can’t use zero either. There needs to be some sort of payment reflected on the credit report – because it also can’t say “Starting 2 months down the road.”
Bottom line – if you have a DEFERRED IBR STUDENT LOAN, with no payments due – there will be SOME KIND of payment used when qualifying you for a mortgage, if you are applying for any loan besides a VA Loan. This is a HUGE change, as for some folks we talk to, it could be $900 or more a MONTH in debt we are counting against them, when they are not making any payments on those student loans right now!
Again with the Good News! Fannie Mae provides a program where you only need 3% down Payment, AND it can be from a gift, or a down payment assistance. There are “Special Program specific” low PMI Rates for those with decent credit, and we can count border income. My point is that this is a viable option for those who want to buy a house!
QUESTION: Do student loans count against my debt to income ratio on a USDA loan if they are deferred?
ANSWER: With the USDA Home Loan NC program , a minimum payment must ALWAYS be included for any loan even if it is a deferred student loan. This is true even if the repayment of that loan will not start for over a year. (If payments are delayed for more than 24 months – we might not have to count them on USDA Home Loans). In most cases the credit report will not show what that minimum payment will be, so borrowers must get a quote from the Lender and have it added to the credit report. This payment is then used in the qualifying of the applicant. If it’s a Zero payment (which we often see with IBR Student Loans) then we are required to add 1% of the balance, as of 12/1/14.
Here’s my concern… Fannie Mae could soon announce that they are going to begin requiring us to count .5% of the balance, to follow Freddie. If that happens, I will again update this post. If you want to follow this issue, subscribe to updates.
Mortgage approval with IBR deferred student loans in 2018 can be like working a really hard puzzle – it takes someone who REALLY knows First Time Home Buyer programs to help you get the numbers to work. That’s where we come in – we deal with SOOO many folks who have various types of deferred student loans, we know what WILL work, and what won’t. Call Steve and Eleanor Thorne 919 649 5058 and get Pre-Qualified today! Student Loan IBR and Mortgage information can be misleading – that’s why we tried to provide the most accurate information based upon what OUR bank is seeing!