Are you paying off student loans and looking to buy a home?
Here are the two ways mortgage lenders view student loan debt repayment and how each impact how much you can afford:
- Income based repayment: Income based repayment (IBR) is calculated based on your income and family size. It could be calculated to as little as $0 per month to as much as 15 percent of your income. If a mortgage lender uses your IBR when calculating your monthly debt, you may appear to have less monthly debt than you actually have, qualifying you for more of a home loan amount than you can comfortably afford.
- The “1%” rule: This method is often used when you receive a deferment or forbearance allowing you to temporarily stop making student loan payments. The 1% rule, projects your monthly student loan payment to be equal to 1%of the total balance for all your student loans. If a mortgage lender uses the “1%” rule, you may appear to have more monthly debt than you actually have, so a lender may qualify you for less of a home loan amount than you can comfortably afford.