Income Based Repayment (IBR) and FHA Mortgages
The problem many FHA buyers run into when buying a home is a high level of student loan debt
Student loan debt levels are at a record high and continue to rise quickly. Coming out of college with a mountain of debt and of course the monthly payments, is causing a couple major roadblocks for millennials to buy their first home.
- Student loan payments make it difficult to save a down payment
- High debt to income ratios make it difficult to qualify for a mortgage
Income Based Repayment (IBR) is the most helpful way for borrowers with large federal student loan balances to keep their payments low. The income based repayment plans can help borrowers keep their loan payments low in relation to their income and family size. These IBR payments can even often be $0 per month!
So How Can IBR Help You Buy a Home? This Ends 6/30/16!!!
Each type of mortgage loan treats IBR or deferred student loan payments differently. But using an FHA loan, which is a low down payment mortgage, can be a way to actually use the lower IBR student loan payment. Even when the buyer has an IBR minimum required payment of $0, we can use $0 when calculating the debt to income ratio on an FHA loan. To do this, we must have an actual statement or online account statement printout proving that the payment required is $0. So FHA can be a great resource to get you into a house when you have federal student loan debt. There is even an option for buyers to use Down Payment Assistance coupled with an FHA loan to bring even less or even nothing.
How Can IBR Help You Save for Down Payment on a House?
Down payment is a huge roadblock for many buyers but there are actually so many solutions that can get you into a house. If you have federal student loan payments, you could check into a lower payment option such as IBR which can not only lower your debt ratio but it can also help save up a down payment. Saving up a down payment is actually easier than most think and often it just takes some lifestyle tweaks or thinking outside the box. See how you could actually save up to $40,000 towards a down payment in a year! Another way of overcoming the roadblock of not having a down payment is to use our low to no down payment mortgage products including VA, USDA, FHA, Down Payment Assistance, 97% Fannie Mae loans, and others. Check out a recent article that explains in detail how to buy a home with little to no down payment.
FHA Guideline: How is the monthly payment determined for a student loan under an Income Based Repayment plan?
This guidance is effective for FHA case numbers assigned on or after September 14, 2015.
The Mortgagee (lender) must include the monthly payment shown on the credit report, loan agreement or payment statement to calculate the Borrower’s debts. If the credit report does not include a monthly payment for the loan, the Mortgagee must use the amount of the monthly payment shown in the loan agreement or payment statement. If the monthly payment shown on the credit report is utilized to calculate the monthly debts, no further documentation is required. If the credit report does not include a monthly payment for the loan, or the payment reported on the credit report is greater than the payment on the loan agreement or payment statement, the Mortgagee must obtain a copy of the loan agreement or payment statement documenting the amount of the monthly payment
If a student loan is not deferred, the debt is considered an installment loan and FHA will count the actual monthly payment for the obligation. This includes the actual monthly payment for the obligation that is being paid under an income based repayment plan, which may include an actual monthly payment of $0