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As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.

The end of college can be an exciting time. While we’re parting from our classmates and going our separate ways, it’s exhilarating to know we’re finally ready to take what we learned in the classroom and use it to make an impact on the real world.

What’s not nearly as exciting is the prospect of paying back our student loans. The cost of college attendance goes up every year and, with it, student debt.

There are 44 million Americans with $1.4 trillion in student loan debt. The average student graduates with $37,172 worth of loans to pay back. That debt has led some of us to delay a lot of things, including getting our first home.

Just because you have student loans doesn’t mean you shouldn’t be able to get out from under your landlord’s thumb, though. A new guideline from Fannie Mae makes it easier to qualify for a conventional loan by allowing you to exclude the loan from your debt-to-income (DTI) ratio if you’re on an income-based repayment plan with a $0 monthly payment. We’ll go over what the change means and the documentation you need to qualify.

The Importance of DTI

Your DTI is a huge key in determining the amount of your mortgage approval. In short, it measures how much of your monthly income goes toward paying off debts like personal, student and car loans as well as revolving debt like credit cards.

In order to figure out your DTI, lenders look at your monthly income from W-2s and tax returns and compare it to the debts reported on your credit report.

Let’s do a quick example to show you how this works.

Let’s say you make $60,000 per year (before taxes are taken out), or $5,000 per month. Each month, you pay $350 on a car note, $400 for a personal loan and $200 on a student loan, and you have a $100 minimum payment between a few credit cards. That makes your DTI 21% ($1,050/$5,000).

The lower your current DTI, the better. For example, Fannie Mae guidelines allow you to qualify with a maximum DTI of up to 50% of your monthly income once the monthly mortgage payment is added in. Of course, you may not want to push the upper limits of your approval because you want to leave room in your budget to save for the future as well as for emergencies. Don’t push past your wallet’s comfort zone.

However, the lower your current DTI, the more home you can afford. This will give you flexibility in terms of the homes you can look at when it comes time to get your preapproval and go house shopping.

Now that you have an understanding of DTI, let’s move on to the change being made.

Change for Those with Income-Based Repayments

Fannie Mae has made a guideline change stating that if you are on an income-based repayment plan for your student loan, lenders can use the payment on the statement to qualify you. Importantly, this includes $0 payments. This means that if you pay nothing toward your student loans at the moment based on your income, it doesn’t add to your DTI.

In order to qualify with a student loan payment of $0, we have to have documentation from your loan servicer that you’ll continue to have a $0 payment on your student loan.

If you have anything other than a $0 payment, you can still get a mortgage. It’s just that the payment will be added into your DTI.

For those of you with student loans, the Fannie Mae change is very good news. If you think you’re ready to buy a home, you can get your application started online. If you’d rather speak with one of our Home Loan Experts via phone, you can give us a call at (800) 785-4788. Feel free to leave your questions for us in the comments.

This Post Has 32 Comments

  1. I was speaking with an online expert on quicken and they literally just told me this entire site is wrong and stated even under fannie mae quicken will assign to STI 1% of all student loan debt. Is this correct or are your agents just simply not educated on the program offerings?

    1. Hi Emily:

      We’ve double checked. The information in this article surrounding income-based repayments still applies. Your payment has to be an actual payment and not an estimated one. I’m going to get this to our Client Relations team to look into what you were told. Thank you!

  2. I currently have 77k in student loans. My monthly payment is roughly 350.00. My loans are in forbearance right now. Will the lender use my 350.00 or 1%? The 1% would rise my DTI tremendously.

    1. Hi Christopher:

      It depends on what loan you qualify for in terms of which figure is used for your DTI. Lenders look at a variety of factors including DTI in determining which loan option is right for you. My recommendation is to speak with one of our Home Loan Experts at (888) 980-6716 to go over your options. Thanks for reaching out!

  3. I have an IBR repayment plan with a $0.00 monthly payment, and I have come across the problem that many lenders are still using the old regulations, which makes my DTI too artificially high. I applied with Quicken and received a call this morning from a mortgage specialist. Because of my experience with other lenders, I asked up front whether Quicken’s policies require use of a 1% figure, or whether the actual figure reported on the credit report (and substantiated by student loan documentation) can be used. Quicken’s mortgage rep told me that they must use half of 1% for my DTI, so we did not proceed with the application.

    1. Hi Tim:

      I’m going to get this to our Client Relations team to review the communication you received. However, there are situations in which a zero dollar repayment can be used as long as your loan isn’t in deferment or forbearance. It depends on what loan you’re applying for. Thanks for reaching out!

  4. I have student loans with an IBR monthly payment of $0.00 and I was told by my quicken loan financial person that they still have to use a half of percent of what I owe towards my DTI, why is that if this article says otherwise?

    1. Hi Doreen:

      The $0 income-based repayment program is something that’s specific to Fannie Mae. I’m going to get this to our Client Relations team to have someone reach out about your specific situation. However, it’s possible that what happened was that another guideline made a Fannie Mae loan unworkable in your case. If that’s the case, the next option would be to go with a Freddie Mac loan which has a 0.5% monthly payment assumption for the purposes of DTI when it comes to student loans. It sounds like that’s what happened here. Someone will be reaching out!

  5. What if a SL is charged off or in default and you want a conventional mortgage? How would this affect the approval process? Thank you!

    1. Hi MM:

      It’s treated like any other charge-off. In the case of a conventional loan, it depends on the type of property you’re trying to get. If you want a one-unit primary property, it doesn’t have to be paid off. With a 2-4 unit property or second home, it has to be paid off prior to closing if the charge-off is over $500 depending on the investor in the mortgage, but one of our but one of our Home Loan Experts can help find the best option for you if you give them a call at (888) 980-6716. You just have to make sure your credit score is a median of 620 or better in order to qualify. Hope this helps!

  6. Hi,

    It looks like guidelines may have changed as of November 1st, 2018. Can you explain these changes and what they mean? For example, it looks like $0 IBR payments no longer qualify.


    1. Hi Alexis:

      There were changes relating to Freddie Mac-owned mortgages as of November 1. On these loans, if you have no student loan payment currently based on income, you must be qualified with 0.5% of the outstanding student loan balance as a monthly payment. This change doesn’t apply to loans owned by Fannie Mae. You can still qualify for a $0 income-based repayment and not have it count toward your mortgage DTI.

  7. Sir:
    I am on an IBR plan of $30 per month. What is the credit score and DTI required for a home loan? Is one’s rent payment included in the DTI calculation?

    Thank you for your assistance.

    1. Hi Cyndi:

      For the credit score piece, you need a median FICO® score between the three bureaus of no lower than 620. Rent payment would only be included in DTI if you chose to keep renting the house. Otherwise, we would qualify you based on the payment you could afford without your rent included. The absolute maximum DTI for this particular loan option is 50%. However, for the best chance at qualification, we recommend going no higher than 43%. If you would like to go over your options, you can get started online with Rocket Mortgage or give one of our Home Loan Experts a call at (888) 980-6716. Have a good day!

  8. Is Quicken Loans a Fannie Mae direct lender? Or will there be any additional lender overlays that require higher student loan repayment or changes to the DTI ratio than what Fannie Mae requires and allows? Looking for a direct Fannie lender that won’t give me surprises.

    1. Hi Peter:

      Our student loan guidelines match up with those provided by Fannie Mae at this time. For more information, I suggest you speak with one of our Home Loan Experts at (888) 980-6716.

  9. Kevin,

    I just spoke to one of your representatives about pursuing a USDA loan. I have significant law school debt but am making income-based repayments at a reasonable amount. I believe I would be eligible for a modest starter home based on my income-based repayment amount using the new Fannie Mae standards, but would not qualify based on the 1% calculation. Your representative and her supervisor were unaware of the changes and would not look into them. She told me the only thing Quicken will do is the 1% calculation. Can you tell me whether these calculations apply to USDA loans, and see if there’s someone that can help me?

    Thanks for your help.

    1. It may have been that you were trying to get a USDA loan, because those guidelines are different than for Fannie Mae. There are also situations in which we have to qualify you based on 1% of the loan amount anyway, but every situation is different. I’m going to get this to our client relations team so someone can reach out after looking into your experience.

  10. If i have a student loan showing in deferrment on credit report, but can provide documentation showing i am in an interest only repayment plan, can i ve qualified on that payment? It is much lower than 1%

    1. We may be able to help you using the payments listed in your statement. It may depend on the type of loan you’re getting. I’m going to recommend you talk to one of our Home Loan Experts at (888) 980-6716.

      Kevin Graham

  11. Hi Kevin,
    1.) Is this still the current guideline? If you have IBRP showing zero, you can be qualified for $0 or does it require 1% or .05% of total student loan balance?
    2.) What kind of properties can you purchase under Fannie Mae loans? I always see FHA/Conventional under financial considerations only. Can a borrower only buy fannie mae properties if qualified?

    1. Hi Andy:

      Yes, this is the current guideline. If you can show a $0 income-based repayment plan, it’s not counted in your DTI. There are no restrictions other than that it has to be a 1-4 unit property.

      1. Thanks for the Reply Kevin. Does Quicken Loans offer these loan products? or can you point me in the right direction. I would like to start the home buying process with in the next 6 months or so.

        1. Yep, we do! You can go and get started online when you’re ready or give us a call at (888) 980-6716 to speak with one of our Home Loan Experts. We hope to be working with you soon!


  12. I have student loan debt that is high. It shows my loans in deferment until next year but shows a payment amount of 1200.00 I have been turned down for a mortgage. I qualify for the IBRP but the mortgage broker is taking that payment rather than the amount of zero. Is there a way to qualify?

    1. Hi Judy:

      If your income-based repayment plan is anything other than zero, we would have to qualify you with that payment. I’m sorry. However, it might be worth talking to one of our Home Loan Experts to take a second look at your situation. You can get in touch with us at (888) 980-6716.

      Kevin Graham

  13. Forgive me if I sound stupid but if you have an income-based payment plan with a $0 monthly payment, that’s usually because you have no income. How do you get a home loan (or any loan) with no income?

    1. Hi:

      You don’t get a mortgage or any loan with no income. In this case, having a $0 monthly payment does mean you might be on a limited income, though. Thanks for asking!

      Kevin Graham

      1. Good morning, Jessica:

        There are several situations in which you might not have to pay back your student loans. However, the particular question was regarding income and this article is on income-based repayment plans. That’s all that was meant by that answer. Thanks!

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