Celebrating 10 years! 2007-2017

Getting a Mortgage with IBR (New Regulations)

Wanted to make everyone aware of what I was just informed by whatisrap04/09/18
I hope this isn't the case or I am definitely not getting a ericcrapton04/09/18
This happened to my wife and I when we refinanced in Novembe jd4hire04/10/18
Wut? So I have to live in the house I just bought for the ne fettywap04/09/18
This better be fake news lolwutjobs04/09/18
https://ncfhaexpert.com/first-time- homebuyer/student-loan-ib fettywap04/09/18
Conventional loan, 20% down cash, credit 800+. The two bank whatisrap04/09/18
I would like to know what the regulation is so we can start ericcrapton04/09/18
As of December of last year that wasn't the rule. If you wer thirdtierlaw04/09/18
Hope those new "high LSAT" applicants are paying attention. 6figuremistake04/09/18
I hope no one is relying on reasonable loan payments due to lilgub04/10/18
You should ask them for the citation. This is all irrelevant lolwutjobs04/09/18
I thought new rules had made it easier to get a mortgage whi maxwell04/09/18
I just got a conventional loan the end of January. The stude fettywap04/09/18
I called a mortgage broker acquaintance of mine and discusse whatisrap04/09/18
I am also high balance & reasonable IBR monthly payment. I warfrat04/09/18
I am in process of buying house and my mortgage provider sai shikes04/09/18
Sounds like this is more likely the bank's underwriting deci shouldalearnedmaths04/10/18
I agree... I wonder if this is OP specific or shift in the b triplesix04/10/18
I think the bigger issue for the banks is that there is no w thirdtierlaw04/10/18
My experiences buying 2 homes over 5 years and looking at MA ibrslave04/10/18
Regulation or not, it's important to remember how significan mrtor04/10/18
I disagree with your assumed intent of the income contingent whatisrap04/10/18
Yep, so stupid, uneducated proles should be subsidizing life triplesix04/10/18
Echoed. Just because these loan forgiveness programs make yo mrtor04/10/18
Wrong. The government can sell as much debt to the Fed and w professionalloser04/10/18
"Forgiveness isn't free." It costs a buck o' five. supercalifragilisti04/10/18
This is off topic. Regardless, I can see both sides. One t ibrslave04/10/18
That is what bothers me most about the anti-IBR program peop thirdtierlaw04/10/18
People like mrtor on this board are pretty much hacks for th um1l04/10/18
So because I have a contrasting ideology, I'm a "Republican mrtor04/10/18
Sounds like a "never-Trumper" as in someone who doesn't thin um1l04/10/18
Everyone knows law school tuition is wildly out of proportio mrtor04/10/18
Well apparently the government thinks these programs are nee fettywap04/10/18
good job on turning this into left/right circle jerk haha triplesix04/10/18
Even more astounding, nothing like socialism for you and unf um1l04/10/18
So the Chinese can come in and buy up our homes? yet a who trijocker04/10/18
Just closed on a house in February. Lender only looked at cu bankofmouse04/13/18
Bought a house in 2016 and ran into this issue. My first br hamman5104/13/18
So how will buying a house go for me and my wife? We would h bigsal04/13/18
Gleaming from all the posts above, I think the most importan maxwell04/13/18

whatisrap (Apr 9, 2018 - 4:02 pm)

Wanted to make everyone aware of what I was just informed by two of the largest US banks in my attempt to obtain a new mortgage -

If borrower is on an income contingent plan (IBR, PAYE, PLSF, Etc.), when calculating DTI, the banks will no longer look at monthly payment amount. They are now required to take 1.3% of your outstanding loan balance and use that number as your monthly loan payment for DTI purposes. This is a HUGE difference, and a big loss for those of us with high balances. My loan balance is over 200,000, but my monthly payment is only ~$350/mo. However, the two huge banks are both telling me the same thing - that for DTI purposes, they have to use 1.3%, so over $2,500/month. This essentially makes getting a mortgage impossible.

Note that five years ago when i obtained my first mortgage, this was not the case. They simply required me to get a letter from my loan servicer (nelnet) which showed what my payment would be for the next 12 months. That figure was what they used when calculating DTI.

This must be a brand new regulation as I can't find anything on the internet about it. Anybody else come across this?

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ericcrapton (Apr 9, 2018 - 4:08 pm)

I hope this isn't the case or I am definitely not getting a house.

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jd4hire (Apr 10, 2018 - 9:54 am)

This happened to my wife and I when we refinanced in November 2016. When we obtained our 30 year mortgage, we obtained a letter from her servicer.

My debt is private, so we didn't have to do anything in that regard.

Fast forward three years when we are trying to refinance and it was a huge issue. we were able to get it to go through, but they explained this issue. I don't recall them citing specific percentages, but the old get a letter from the servicer for payment amount was no longer applicable. I'm pretty nervous when it comes time to sell and buy.

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fettywap (Apr 9, 2018 - 4:05 pm)

Wut? So I have to live in the house I just bought for the next 15 years?!

I don't think that's right. I had somebody tell me that when I was trying to get a mortgage, and he was just wrong.

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lolwutjobs (Apr 9, 2018 - 4:08 pm)

This better be fake news

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fettywap (Apr 9, 2018 - 4:10 pm)

https://ncfhaexpert.com/first-time-homebuyer/student-loan-ibr-mortgage-qualification-2014/

Were you trying to get an FHA loan? This seems to be true for FHA loans.

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whatisrap (Apr 9, 2018 - 4:16 pm)

Conventional loan, 20% down cash, credit 800+. The two banks were Chase and Bank of America - both saying the same exact thing.

I'm not sure who I am suppose to go to to figure out if this is BS or not? I made each broker go back to underwriting managers to verify, and they confirmed that it is correct. Can't be a mistake.

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ericcrapton (Apr 9, 2018 - 4:17 pm)

I would like to know what the regulation is so we can start a petition to eliminate it. This is going to prevent lots of professionals on income based repayment plans from buying a home.

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thirdtierlaw (Apr 9, 2018 - 4:19 pm)

As of December of last year that wasn't the rule. If you were in foreclosure or deferment or making a zero payment they'd use 1%, but if not I just submitted my monthly REPAYE amount. They had just changed the rule the prior year or two, so I'd be shocked if they updated their policies again so quickly. Though we went through our credit union and wasn't an FHA loan.

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6figuremistake (Apr 9, 2018 - 4:25 pm)

Hope those new "high LSAT" applicants are paying attention. Even if you land on your feet with an ok job and reasonable loan payments due to to PAYE, you can still be denied a basic element of a normal middle class existence.

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lilgub (Apr 10, 2018 - 8:58 am)

I hope no one is relying on reasonable loan payments due to PAYE - forgiveness options are going to disappear or at least be severely pared down.

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lolwutjobs (Apr 9, 2018 - 4:28 pm)

You should ask them for the citation. This is all irrelevant without knowing what authority they are relying on.

I just don't know how they can predict how much you'll owe per month without also predicting how much you'll be earning. It is INCOME based. Its dumb to extrapolate the debt without doing the same for the income. You won't be making x per month for life and you don't presently pay Y per month and even if you did, it wouldn't be for life

#edit: spoke with our prospective bank. They say you lie

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maxwell (Apr 9, 2018 - 6:51 pm)

I thought new rules had made it easier to get a mortgage while on IBR.

https://www.forbes.com/sites/nickclements/2017/07/31/new-rule-makes-it-easier-to-get-a-mortgage-with-student-loan-debt/#2998d512173d

https://www.usnews.com/education/blogs/student-loan-ranger/articles/2017-05-03/new-fannie-mae-rules-help-home-buyers-owners

"There are a few caveats to this new rule. First, the payment amount must show up on the borrower’s credit report and must be more than zero. If the payment fails those criteria, the lender will be required to use the 1 percent value. Or, the borrower can then apply for a new income-driven plan plan that pays off the loan in full during the term. Examples of plans that would fit this criteria are consolidation, extended and graduated repayment plans.

Since credit reports can take a month or more to display activity, we advise borrowers planning on applying for mortgages to get their payment plans in place a few months before beginning the mortgage application process. Then you can confirm the payments are reflected on your credit report or obtain documentation showing the other plan."

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fettywap (Apr 9, 2018 - 7:49 pm)

I just got a conventional loan the end of January. The student loan was no problem at all. I don't see anything online about the rules changing this year.

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whatisrap (Apr 9, 2018 - 7:50 pm)

I called a mortgage broker acquaintance of mine and discussed the issue. The Fannie Mae regulation states that if the credit report doesnt list the monthly paymeny then you use the 1%. He said the problem is that these bank monkeys think somethig looks off when the credit report line item shows a huge balance but see a small payment amount. When it looks “off” they default to the 1%.

So false alarm (sort of). Just have to continue to search around for a lender whose underwriter just goes with the fannie mae reg and only uses the credit report numbers.

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warfrat (Apr 9, 2018 - 8:29 pm)

I am also high balance & reasonable IBR monthly payment.
I got a mortgage in late 2016, all they needed was the letter with monthly payment.
I went through a small community bank where they did underwriting in-house, I can see how larger banks
offer less flexibility -my advice is to talk to a local bank or credit union.

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shikes (Apr 9, 2018 - 9:02 pm)

I am in process of buying house and my mortgage provider said its monthly payments UNLESS FHA (but believe it may be state related to) and then its 1%. I have a very high balance and had to go conventional just because of that.

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shouldalearnedmaths (Apr 10, 2018 - 9:33 am)

Sounds like this is more likely the bank's underwriting decision, and not driven by a rule change.

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triplesix (Apr 10, 2018 - 9:56 am)

I agree... I wonder if this is OP specific or shift in the bank's policy on general? Do they predict that this gravy train might be over?

Giving a mortgage to somebody with a lot of debt and relying on largesse of the taxpayer might be a bad idea, who would have ever thought.

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thirdtierlaw (Apr 10, 2018 - 11:17 am)

I think the bigger issue for the banks is that there is no way to predict what a person's loan payment is going to be a year or two from now. So if you have someone borderline on the debt to income ratio with a low IBR, knowing that a person's payments might shoot up if they start making more money is worrisome.

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ibrslave (Apr 10, 2018 - 10:07 am)

My experiences buying 2 homes over 5 years and looking at MANY possible lenders with a high loan balance, was that the experience and knowledge of the mortgage broker was the most important factor. And, some federal regs for federal loans were based on the 1-1.5% DTI ratio (if I remember correctly). I had some regional director for US Dept of Agriculture look into this on my behalf when I was looking into a rural development loan. I was told they have been discussing student loan debt for years, but unfortunate I could not get a loan based on that 1% of total loan balance reg. That being said, the first broker we used was older and worked in a metropolitan area. It was a FHA loan with a good interest rate. We sailed through the process.

Next house we used a younger broker who was learning the ropes and worked in a smaller metropolitan area. We had to produce many, many documents and weren’t always given totally accurate info. But, we got through it with a pretty decent interest rate using a conventional mortgage.

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mrtor (Apr 10, 2018 - 11:25 am)

Regulation or not, it's important to remember how significant of an impact student loan debt has when you are seeking more credit. Right or wrong, if you have that kind of debt, you need to adjust your lifestyle. You may need to seek out a high earning spouse. Your spouse may need to keep working to qualify for a mortgage without you. These are consequences of choices.

That being said, I don't think the DTI rule would really prevent home ownership. It may, however, prevent you from obtaining that McMansion you think you deserve and put you in a more modest home. In some sense, that's fair. The loan forgiveness programs are intended for those who truly cannot afford to make their payments. You shouldn't really be milking the loan forgiveness programs and living the high life.

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whatisrap (Apr 10, 2018 - 11:43 am)

I disagree with your assumed intent of the income contingent repayment plans. I believe the programs exist for the health of the overall economy. Low loan payments allow for borrowers to put discretionary income out into the world, creating positive ripple effects, rather than simply spending all discretionary income (with no hope of ever paying down the principal) on the loan payment.

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triplesix (Apr 10, 2018 - 11:49 am)

Yep, so stupid, uneducated proles should be subsidizing life style of overeducated stupid middle and upper middle class that made bad decisions. Bc that's what's good for the economy!

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mrtor (Apr 10, 2018 - 12:19 pm)

Echoed. Just because these loan forgiveness programs make your life easier and more enjoyable, does not make them good for the economy. Forgiveness isn't free. The money is coming from somewhere -- from someone. The impact may be delayed, because delaying things is what our government does best, but the effects will harm the economy far more than the benefits of the minuscule discretionary income you regain.

The economy would carry on irrespective of whether the government had mercy on a relatively small group of overly educated and deeply indebted graduates.

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professionalloser (Apr 10, 2018 - 2:20 pm)

Wrong. The government can sell as much debt to the Fed and whoever else is willing to buy it (e.g. China before the "trade war") as it wants with little consequence. It is in fact so indebted to the Fed et al that it has to issue new debt to pay off the old. This has been the case for years and amounts to nothing more than an ongoing Ponzi scheme. The myth that student loan forgiveness would need to be financed by higher taxes is one of the most idiotic and pernicious lies ever concocted to keep the debt-proles in check.

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supercalifragilisti (Apr 10, 2018 - 3:07 pm)

"Forgiveness isn't free."

It costs a buck o' five.

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ibrslave (Apr 10, 2018 - 12:49 pm)

This is off topic. Regardless, I can see both sides. One thing that hasn’t been mentioned is that for PSLF people, there is a significant benefit to the community who gets the assistance of public servants who that are often more qualified than what they would otherwise get. I have seen some truly passionate and smart people on PSLF, and they have helped many disadvantaged folks. Also, people on PSLF often pass on better paying jobs to stay in the program. There are real opportunity costs. Finally, just about every person I know on PSLF are struggling financially! There is no McMansion. Far from it. The loan program is foreign to many lenders and car financing companies, which creates a problem every single time you want to take out a loan, buy a used car with high miles, or for getting some credit cards. They see you as a pariah or an unknown risk, whether warranted or not. Even if you have excellent credit! It makes starting and maintaining a family very difficult, especially when you’re making mid-5 figures several years out of law school.

Yes, I also know some professionals on PSLF with their dream gig in federal government making 6 figures. They are the same people with connections in law school or who meet some profile the government is looking to fill. Imagine that, a bimodal curve within the PSLF program! It probably isn’t fair, especially with tax dollars being used to fund their lifestyle. Maybe that should be tweaked. But, I would caution lumping every IBR or PSLF person together.

Finally, despite what I have heard falsely states on a Fox News panel, PSLF was not created by a liberal think tank! It was created by George W Bush. Trying to politicize it as a handout to the elites is not historically or factually correct.

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thirdtierlaw (Apr 10, 2018 - 3:49 pm)

That is what bothers me most about the anti-IBR program people. There are many people on the program that aren't making ends meet. This is a board created for attorneys so the numbers are a bit skewed with how much money they are borrowing. There is no doubt that pharmacists, doctors, and attorneys benefit the most from the forgiveness piece. But many of those posters completely ignore the people with undergraduate degrees that wouldn't be able to purchase anything if IBR didn't exist.

As for PSLF, people point to government attorneys making 6 figures, but will conveniently ignore the public defenders starting at $35k-40k a year and maxing out at like $80k after 20 years. My state cannot find enough social workers, because nobody is willing to take out the $40k-60k to get a social work degree and then go work for the state making $30k a year. PSLF allows those positions to be filled.

So yes there are people "gaming the system", I'm guilty as charged, but I believe there is a net societal benefit allowing these recent college grads to pump money into the economy vs. just sending it into a bank. Especially now that it is nondischargeable debt. Look at the rates of delinquent payments or even defaults with IBR existing.

While I'm in the middle of my tirade, IBR programs are also one of the few things that allow U.S. students to be competitive with foreign job applicants. It's much easier for a German college student with zero debt to take a job for $45k a year than a U.S. college student who would need to pay $10k a year towards a student debt load.

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um1l (Apr 10, 2018 - 4:12 pm)

People like mrtor on this board are pretty much hacks for the Republican establishment that attempts to destroy efforts to allow repayment options that enable borrowers to live a reasonable lifestyle. A lot of people who took out loans will be making in the 100-130k range in a decade or so, good incomes but not enough to pay off the entire loan (maybe enough to save for the tax bomb but thats another story). These are not wealthy people, particularly in certain regions and many took out loans based on completely fraudulent employment statistics. A better idea would be to let people refinance, IBR it for 10-15 years and then forgive the balance without a tax bomb at the end. Of course all of this needs to come concurrently with a complete overhaul of the higher ed system and eliminate a lot of the bloated garbage schools have in terms classes/administrators that are unnecessary.

And speaking of harming the economy, forgiving all outstanding student loans would harm the economy a lot less in numerical terms than the tax cut passed last year. IBR is not going away at worst because its in the promissory note, the worst case scenario is really paying the tax bomb at the end.

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mrtor (Apr 10, 2018 - 4:36 pm)

So because I have a contrasting ideology, I'm a "Republican hack?" Get your head out of your @ss. Name calling is such a petty and childish approach to debate. You're pulling a page right out of Trump's playbook.

Your definition of "reasonable lifestyle" is also abstract. What is "reasonable?" You probably want a nice home, a newer car, nice clothes, and good schools for your kids, right? Guess what? Most of America doesn't have that. But I forgot, you're an educated lawyer who has the government paying off your debt, so clearly you're entitled to those things. They're "reasonable." You, sir, deserve what other Americans don't.

Do you see the other perspective yet? I'm not saying you shouldn't take advantage of these loan forgiveness programs. But own the fact that they are designed to prop up the lifestyles of highly educated people so that they don't have to live like many average Americans.

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um1l (Apr 10, 2018 - 5:29 pm)

Sounds like a "never-Trumper" as in someone who doesn't think Republicans are helping the top .01% enough. Reasonable would be allowing people to refinance at a lower interest rate and keep IBR and ending the IBR timeframe at a reasonable tax free 10-15 years. The truth is LS tuition rose at a rate far higher than inflation and government can and should remedy this by offering forgiveness.

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mrtor (Apr 10, 2018 - 5:40 pm)

Everyone knows law school tuition is wildly out of proportion.. that's not a secret. Did anyone force you to attend and incur that debt? You made a bad choice. Many of us did. I guess I'm still struggling with why your bad choice is so clearly the government's responsibility now.

It is one thing to be humble and grateful for these loan forgiveness programs. It is another thing to feel entitled to them. Like you "deserve" this for what you "went through." I'm on PSLF. It has made my life easier. But I also accept my bad choices, learned from them, and appreciate the support.

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fettywap (Apr 10, 2018 - 5:45 pm)

Well apparently the government thinks these programs are needed because they've been around for 10 years and are not going anywhere.

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triplesix (Apr 10, 2018 - 6:27 pm)

good job on turning this into left/right circle jerk haha

it wouldn't be America, if y'all didn't

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um1l (Apr 10, 2018 - 6:30 pm)

Even more astounding, nothing like socialism for you and unfettered capitalism for everyone else. Do you think you should get tax-free forgiveness after 10 years while doc reviewers pay for 25 years and then have a 150,000 tax bomb? And yes, student loans are only one of the major issues facing people, people who have less education need to be able to form unions, have more bargaining as well. I will be fine as I should have assets to grow and use as a shield against the tax bomb but the entire system is a complete joke. And yes, the government has a role in all of this with their ridiculous interest rates, student loans are not solely a transaction between two private parties.

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trijocker (Apr 10, 2018 - 2:02 pm)

So the Chinese can come in and buy up our homes?
yet a whole generation of Americans has no chance now at a home.
I do remember David Epstein shaking his head at our Barbri contracts in SF, and stating
in his southern drawl, so some of you owe 200000 in student loans, that is like a home mortgage
in other states, and he was right.
Please provide a link to this regulation.
I think all the law school applicants should read this before signing those loan docs.
That means you will never be able to get a home in many regions.

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bankofmouse (Apr 13, 2018 - 4:08 am)

Just closed on a house in February. Lender only looked at current monthly student loan payment. Didn’t even have to get a letter.

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hamman51 (Apr 13, 2018 - 9:09 am)

Bought a house in 2016 and ran into this issue. My first broker informed me that he needed to use this 1.3% method about a week before closing. Needless to say, I was freaking out and pretty outraged at him for waiting until the final hour to spring this detail on us. I was able to find another broker/lender in about 3hrs who applied the previous rule and was able push the loan through in time for closing. I can't speak with certainty on what made the difference between the two lenders, but I will say that my second broker seemed to be more engaged with the moving pieces of the loan origination process. He even called Fannie Mae directly to confirm that he could use the monthly payment. In contrast, the first broker was just waiting around for confirmation from others in his brokerage, which could be indicative of relative the size of their organizations. My advice, is to shop around and definitely look at regional or local banks. At the end of the day if you can show that the real $'s following out of your bank account each month are significantly less than the after tax $'s coming in & you have good credit, someone will lend you money.

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bigsal (Apr 13, 2018 - 11:32 am)

So how will buying a house go for me and my wife? We would have about 600,000 in loans together.

But we can make around a half million per year.

Credit scores are in the 780s for both of us.

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maxwell (Apr 13, 2018 - 11:23 pm)

Gleaming from all the posts above, I think the most important factors in obtaining your loan are:

1. Confirm your credit report shows your monthly payment (which I'm assuming is lower than the 1% method, but I'm not sure in your case)

2. Make sure your lender/broker is familiar with the Fannie Mae Regs regarding student loans, and they are willing/able to use those Regs. Ask up front, no need to waste time if they don't.

3. If your lender/broker is not familiar, educate them. AND then make sure they are willing/able to use those Regs before moving forward.

Selling Guide Announcement SEL-2017-04

https://www.fanniemae.com/content/announcement/sel1704.pdf

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