March 29th, 2018 9:24 AM by Bob Rutledge
2018 Guide to Qualifying for a Mortgage
with IBR Student Loans
you have student loans, qualifying for a mortgage can get tricky.
loan guidelines have changed yet again. This is your ultimate guide to
understanding how these changes will affect you in 2018.
you begin to make payments on your student loans, you may have several options.
be making payments on your student loan based on your income. This is
called an Income Based Repayment (IBR) plan.
plans typically will not cover the principal and interest due, and the loan
balance may increase even though you are making payments.
payment is based on a calculation that pays off your loan in full at the end of
a loan term, this is an amortized payment.
underwriting guidelines with all lenders will allow you to use an amortized
payment when calculating your debt to income ratio.
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.
Loan Payment Change History
and more students are straddled with student loan debt for years after leaving
chained to student loan debt requires an experienced locksmith to unlock the
correct guidelines to get you approved for a home loan.
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
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
first major change to the underwriting guidelines happened when lenders were no
longer allowed to ignore deferred payments or loans in forbearance.
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.
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.
Your Debt to Income Ratio (DTI)
entire student loan debacle is being caused by confusion around how your debt
to income ratios are calculated.
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.
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.
using a 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
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.
loans become confusing when no payment is reported on your credit report, or
when your payment is an Income Based Repayment (IBR) payment.
Student Loan Guidelines Snapshot
Non-amortized Payment – IBR Ok, even with $0.00 payment – Updated
Amortized Payment – Ok with all lenders
Deferred or forbearance use 1% of loan balance.
Non-amortized Payment – Must use .5% of loan balance – Updated
Non-amortized Payment – Not Allowed | Must use 1% of loan
Non-amortized Payment – Not Allowed | Must use 5% of loan
balance divided by 12
Non-amortized Payment -Not Allowed | Must use 1% of loan balance
and Fannie Swap Guidelines
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.
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
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.
Solutions to Solve Student Loan Problems
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.
Deferred or Loan in Forbearance
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
Co-Sign and Pay Student Loan Payment
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.
Income Ratio too High for Conventional
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.
Not Showing Up on Credit Report
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.
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.
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.
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.
Lenders Get it Wrong
you’re calling from a TV, radio, or internet advertisement, you are most likely
being connected to a call center, where the “Loan Officer” has little to no
actual mortgage experience. You can look up the experience of your Loan Officer
and see when they got their mortgage license and what they were doing before
they became a mortgage loan officer. (YOU
WILL BE SURPRISED!)
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. They only want and really can only do the vanilla stuff.
are working through a big box lender, here is what is really happening, your
application is not getting in front of a professional until it reaches the
times, your file is not in front of the underwriter until after you’ve already
accepted your purchase offer and paid for the appraisal.
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
wouldn’t believe this happens as much as it does if I didn’t see it professional
so often! 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.
with an Expert