Student Loans, Income Based Repayment, and Qualifying for a Home Loan

I got a call from the person we’ve been talking to about getting a home loan. She told me everything looks really good except my huge student debt. Even though I am on Income Based Repayment (meaning my payments range from year to year from between zero a month to eighty a month) she said she has to use the standard amount we would be paying if we were paying the thing off in 20 years. This puts our debt-to-income at something like 54%. If our actual payments were taken into account, it would be much much lower (twenty something percent IIRC). And though the IRB payments may rise in the future, this will only be if our income rises, and the payments will rise by just 15% of the income rise. So in that sense, we can practically guarantee that our debt-to-income will be sufficient. (Not to mention that in five more years, the entirety of the student debt will be written off as I work at a non-profit.)

Questions for any who may be knowledgable here:

Is this rule about looking at the total payment instead of the IBR-adjusted payment universal, or does it differ from lender to lender?

Right now we’re working through the Section 184 program (home loans for Native Americans). That’s a HUD program (I think!). Could this rule differ for loans offered under different circumstances?

What else do you think?

I cannot speak generally, but I am currently refinancing and have a student loan situation almost identical - including having it go poof in five more years. The lender we are working through saw the high student loan debt and the current payment we are making and asked no more. They made no mention of nor asked anything about the student loan repayment plan options.

I don’t think the public service loan forgiveness program (I am assuming there) is going to be a factor in a loan decision. To many variables, a lender cannot count on you having your student loans paid off in five more years. But the repayment plan, it is your decision what plan you are on, and the IBR payments are a percentage of your income. By it’s nature, if your student loan payments go up, it is because you have more income overall. It sounds like your lender does not fully understand student loans

It’s in IMHO, so I’m offering an unsolicited opinion. Here’s a quote and a link:

“Few borrowers who enroll in (income-based repayment) understand the full consequences of negative amortization,” says Alex Holt, program associate with the Education Policy Program for New America Foundation, a nonprofit public policy institute in Washington, D.C.

Income based repayment plans can cost you a ton of money down the road.

That’s useful information for some people, but ftr in my situation IBR very clearly saves us a very, very, very large amount of money over the long run.

Even more so the article specifically states that the public service loan forgiveness program and those with HIGH debt can benefit from income based repayment plans. I believe our OP qualifies under both of those.

(That was in response to Bill Door, not you Frylock. Sorry for not being clear.)

I have astronomical student loans, and they never worried about them in pre-qualifying for a mortgage.

If you have a small loan and work as a hotshot stock broker, yeah, it doesn’t add up. I have huge loans and work in public service, and in 7 short, short years of affordable payments, they will all disappear.

I actually just learned that public service loan forgiveness isn’t taxed! That’s good news for me!

On further communication, it turns out that while it doesn’t matter to all lenders in all circumstances, she is under a directive from the (whatever it was called, the federal department that deals with native american affairs) that she must use the payment amount reported on my credit report, regardless of IBR status.


She didn’t seem to think it out of the question (and some internet poking seems to confirm it’s not out of the question) I might get my student loan handler to report my actual payments instead of the theoretical full payments to credit reporting agencies, AND

Despite what she’d just said, she also said that if I were to clearly document what my payments have been so far and get a letter from the loan handler explaining the program, she could use that as a basis for some discretionary wiggle-room.

She kept telling me that in every other way, my wife and I are ideal borrowers, and this was the one thing holding it up.

I may just pay off the car and shrink the down payment I was going to offer a little. She ran the numbers and I would qualify in this case. This will involve paying more over the life of the loan, but not an incredible amount more and (don’t laugh I’m sure everyone says this) I have a hope-bordering-on-plan to get the house paid off extremely early anyway, using money earned as an adjunct instructor, which, thus far, I seem to be able to procure on demand.

Heck yes! Loan schmoan, this is a straight up government subsidy, just don’t let anyone know. :smiley:

Which, oddly enough, is called the Bureau of Indian Affairs.


Little update: We should have word by the end of next week as to what we’ll be approved for.

Worst case scenario is they count the entire student loan payment in the debt-to-income ratio, which would mean we’re approved for only $115000

Best case scenario is they estimate the payments at some small amount, in which case we could be approved for far more than we need.

She’s been talking in terms of $130,000 the whole time, and that’s what she put on the disclosures she sent us to sign. Is there any general rule of thumb, here, as to whether she is likely to have over-estimated or likely to have under-estimated this? I don’t want to get my hopes up for $130,000 (which will allow us to purchase a home that fits our needs) when it’s going to end up being $115,000 (which I don’t think we’ll be able to make work, based on what we’ve seen in houses so far).