Student Loans

The Obama Administration introduced the income based repayment program (IBR) for student loans.  This allows borrowers of federal student loans to set their monthly repayment amount based on their income rather than making an amortizing payment.

(An amortizing payment would be one that is set to be paid off in the allotted term of the loan, and covers the necessary interest as well.  Therefore the monthly payment for this loan is of course based on your loan balance, loan term, and interest rate).


There is also the public service loan forgiveness program.  This allows borrowers of federal student loans to have their debt be forgiven after ten years of qualifying public service work post-school.  This would include non-profit and government employment.


Thanks to the existence of these programs, many borrowers have chosen to make only the income based repayment minimum rather than the fully amortizing payment.  This potentially reduces their required payment and will extend the term of their student loans.

It’s important to understand how your student loans affect your ability to qualify for your mortgage.  How it affects your qualifying ability depends on which loan program you select. Make sure to check out this link for info on calculating your debt to income ratio.

There are four primary loan types:

Fannie Mae and Freddie Mac conforming conventional financing

VA Loans

FHA Loans

Each of the loan types analyze student loan payments differently.

  1. Conventional loans – Fannie Mae.  This conventional conforming loan type will allow us to use the monthly payment shown on your credit report for qualifying.  However if the monthly payment is $0, then:
    1. If the applicant documents that they are under the income based repayment program with a $0 required payment, that is the payment we use.
    2. If the applicant is not under income based repayment, then we can use either the fully amortizing payment or a payment that is 1% of the balance.
  2. Conventional loans – Freddie Mac.  For student loans in repayment, we qualify based on the current monthly payment.  If the student loans are not in repayment, then the qualifying payment is .5% of the current balance.  Meaning if an applicant owes $50,000 and is not in repayment, the estimated monthly payment is $250.
  3. FHA Loans.  Same as Freddie Mac
  4. VA Loans.  This loan type which is veteran-only will allow us to use the payment reported to the credit bureaus, provided the applicant submits their student loan statement.  If we do not have the student loan statement and if the reported payment is less than 1/12th of 5% of the outstanding balance, then we will use 1/12th of 5% of the outstanding balance as the estimated monthly payment.  However if the student loan is deferred for more than one year post-closing, we do not need to consider a payment whatsoever.


So – the conclusion is if you’re in repayment on your student loans we’ll qualify with that payment.  We will only estimate the payment if you’re not in repayment.

If you are applying for a jumbo loan (greater than $970,800) then you might expect that if you’re in income based repayment, depending on the loan program, we might estimate the payment to be 1% of the balance.

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