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IBR $0 total loans about 68K DTI paydown

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IBR $0 total loans about 68K DTI paydown

  • So I have been working on some of my credit lately. I know I have a ways to go but basically know what to do on everything else in general. I do however have questions regarding my student loans. I have multiple ones reporting highest is in the 40K or so range from consolidating others with higher interest together. Lower interest ones I left alone. They are all older now. I know the whole 20 to 25 year thing on an IBR the remainder is forgiven. Well my payment is 0.00 because my income isn't that high and I have 5 kids going on 6 though I'll only be able to claim 5 as one turned 18 and moved out. I want to eventually be able to get a home probably through a low income program but am concerned about DTI as they state they will calculate payment at 1% which puts it around 687.00 a month. I need to lower this. So is it smarter to pay what I can to the higher consolidated newer loan as it has the longest before forgiven and one of the higher interest rates or do I work on the smaller ones and try to pay off over time even though interest rate may be lower and loan been open longer with a chance of being forgiven sooner? I hope I explained this clearly enough.
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Re: IBR $0 total loans about 68K DTI paydown


@Mommy2-3wD wrote:
  • So I have been working on some of my credit lately. I know I have a ways to go but basically know what to do on everything else in general. I do however have questions regarding my student loans. I have multiple ones reporting highest is in the 40K or so range from consolidating others with higher interest together. Lower interest ones I left alone. They are all older now. I know the whole 20 to 25 year thing on an IBR the remainder is forgiven. Well my payment is 0.00 because my income isn't that high and I have 5 kids going on 6 though I'll only be able to claim 5 as one turned 18 and moved out. I want to eventually be able to get a home probably through a low income program but am concerned about DTI as they state they will calculate payment at 1% which puts it around 687.00 a month. I need to lower this. So is it smarter to pay what I can to the higher consolidated newer loan as it has the longest before forgiven and one of the higher interest rates or do I work on the smaller ones and try to pay off over time even though interest rate may be lower and loan been open longer with a chance of being forgiven sooner? I hope I explained this clearly enough.

I could be wrong, but when my SO looked into the forgiveness (he also has $0 payments on IBR), they told him that speeding up payoff will not change the number of qualifying months. If you are going for forgiveness, then you still have to have x number of qualifying months and anything you pay towards that will just lower the balance and not speed up the forgiveness. I say this because $0 payments x 120 months or 240 months is still $0, so there is no way they will just forgive them because you don't currently have a monthly payment. With IBR you recertify annually (at least my SO does) and they adjust the payment as necessary. So they will string out the entire required time before there is any forgiveness of the balance.

 

I have heard of some mortgage programs that use 0.5% of the SL balance when calculating DTI. I am unsure if they are low income programs. Have you spoke to a mortgage lender that offers the low income mortgages? Perhaps they have some sort of work around with DTI and SLs because of your IBR and can perhaps somehow use the $0 payments to your benefit when calculating DTI?

 

The only other option I know of is to pay down the SLs to lower your DTI which would in a sense defeat the forgiveness path and IBR benefit of $0 payments.

 

Good luck and let us know how it goes!




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Message 2 of 8
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Re: IBR $0 total loans about 68K DTI paydown

Lol you are the only.one who has ever replies to anything I poated it seems. I do wanna say I may not have made myself clear in that I know how the forgiveness works overall and that the loan won't be forgiven any sooner by paying towards it. The goal is to overall reduce my debt to income ratio as I'm gonna take a big hit on that with the loan amts as they are. My question was more of the does it make the most sense to pay down on the highest loan dollar amt which is also the highest interest rate and newest loan therefore making it be the one furthest away from being forgiven anyway or to try to pay off one of the lower amt ones completely and closing it out even though it has lower interest rate and would be forgiven and therefore gone sooner. 

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Re: IBR $0 total loans about 68K DTI paydown


@Mommy2-3wD wrote:

Lol you are the only.one who has ever replies to anything I poated it seems. I do wanna say I may not have made myself clear in that I know how the forgiveness works overall and that the loan won't be forgiven any sooner by paying towards it. The goal is to overall reduce my debt to income ratio as I'm gonna take a big hit on that with the loan amts as they are. My question was more of the does it make the most sense to pay down on the highest loan dollar amt which is also the highest interest rate and newest loan therefore making it be the one furthest away from being forgiven anyway or to try to pay off one of the lower amt ones completely and closing it out even though it has lower interest rate and would be forgiven and therefore gone sooner. 


Haha! I guess we just have similar things going on in our credit profiles!

 

I understood the question, that is why I was saying that none of them will get forgiven faster. They will all take the same number of required months before forgiveness unless they are all on different plans? If you pay it off before the required number of months on your forgiveness track, then you will simply be paying them off and not speeding up any forgiveness amount.

 

Like my SO with $0 payments, it is not in his benefit to pay a penny because then he is throwing money in the wind otherwise, as the entire balance should be forgiven as long as he maintains his IBR annual certification. Nothing will be forgiven gaster if he pays it, he will simply be paying towards the balance to reduce the amount owed, but again, likely for nothing because those monies owed were being forgiven anyway. It is a waiting game. They can only hope his income goes up so that he woll be required to make payments on these loans at some point.

 

Also, no matter what you choose to pay, it still will reduce your DTI overall. They will not see it individually when calculating your DTI for a mortgage. I believe they calculate that themselves. They will not say, "oh she has 20% DTI on this loan and 300% DTI on this other loan". They will usually take the entire balance of the student loans combined and calculate 0.5% or 1% of that total balance owed as your monthly payment, and yes, even if you have a $0 monthly payment. That is just not how banks calculate these things. They want to know that you can repay all your monthly obligations at a more standard repayment level, not at a level that fluctuates and relies on yearly certification. They want to know what the monthly payment would be if it took, say, 10 years to pay off (give or take). Then they will your calculate your overall DTI by adding the rest of your debts in. If they have fixed monthly payments they will add that up, and if not, they will likely calculate your monthly obligation another way and then add up all those monthly obligations and that is your monthly debts. They will then divide that number by your monthly income (calculated usually from AGI on your tax returns) and that will be your DTI that they use for the mortgage app.

 

I hope that made more sense as to what I was trying to say above!

 

If you are trying to reduce your DTI and disregard forgiveness altogether, you would pay more towards the principle of any of your loans. I would look at the terms of your loans, though, as they are assuming based off your certfication that you cannot afford to make any payments, and I would be a little concerned that they may then decide next certification period that you can make payments. You also need to see if you make any payments (since your payment amount is $0) what that would be applied to? Interest or principle? Since you have $0 payments, it might he possible to request that any funds go towards reducing the principle. Just remember the more you pay, the less that is forgiven. I am no expert on forgiveness trqck and making additional payments. Most aim to get the lowest payment possible and ride it out until they are forgiven because the more time that goes by with reduced payments, the interest keeps building, and the higher your DTI, on the loans themselves, becomes. Not to sound alarming, I just would make sure to see where any paymenys you make are going and I know you have to specify where any overpayment is applied or it automatically goes towards the interest, which will not lower your principle balance nor the amount of interest accumulating daily. If it is applied towards the principle, the interest that accumulates daily will be reduced. I hope I have not made this more confusing, but SLs are quite confusing at times!

 

Perhaps someone else can chime in with some experience in this arena.

 

I would really reach out to a low income mortgage specialist and see if they can somehow count those $0 as just that since you are on IBR, instead of going the traditional route of calculating the monthly obligation for them. That would save your money for better use, like a downpayment, then throwing it in the wind where it would have been forgiven, anyway.

 

There are mortgages that calculate 0.5% for SLs, as I mentioned above, which would bring your monthly obligation down to $340-ish a month.

 

You would have to pay off a large chunk to make a real change in the calculation. To get $200/mo payment at the 1% calculation, that would mean paying down $48k on your SLs. Or $28k at the 0.5% calculation. Is that something that is feasible? That is a downpayment in itself. So before you start spending your money on your SLs, I would really would consider talking to mortgage specialtist to see what they can do to maybe assist somehow in the process.

 

Good luck!




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Message 4 of 8
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Re: IBR $0 total loans about 68K DTI paydown

Good response @LaHossBoss . What you said made sense to me and hopefully to OP as well.

@Mommy2-3wD I'm sure you already thought about this, but do you have any other debt you can pay down on and just leave the sl be. 

 

Im on an IBR, but I'm going to end up paying it off before it is forgiven. It's still the cheapest repayment option with my lender. Of course, that wasn't always the case. If there's not other debt to tackle, just in case your income goes up significantly, it may be best to pay the higher interest rate loans down 1st. 

Sending positive vibes, for you and the kids, the future home and increased wages. 

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Re: IBR $0 total loans about 68K DTI paydown

Yes by the time I am mortgage ready I shouldn't have any other debts. I have cards and a self loan but the self loan is just to increase my limit on the secured card until I can qualify for better cards and the cards I use and pay off just to keep usage and keep open since they are shutting cards down now with no usage and rewards. I have a walmart card as I buy a lot from there and the rewards have been pretty good so far with it. I think in the last few weeks I have gotten like 50 off my total just from my usage. I have no car right now so have been using their delivery service and have 4 going on 5 kids so buy a lot use that card and pay it off. I have been watching by statement closing amts as well so it doesn't report high utilization. I also have a secured discover card with rewards but lower. I use it to pay my weekly payments to snap finance and then pay it off as I get deposits every 2 weeks. This way I'm never late or behind on the snap. Snap doesn't report but will report if not paid and if not paid within 100 days will double. Worthless loan to fix my van and it's still broken anyway 2200 later. I also have fingerhut but pay it off quickly if I use it and don't use my credit limit. I plan to use and payoff cards not carry debt. I will have the self loan paid off and the snap loan paid off before I ever app for mortgage. I have old debt charge offs and collections but have been and will continue to work on those so before I  even app for mortgage they will be paid hopefully removed but at least paid. So essentially plan on being free of all debt but the student loans. I also just learned about NACA mortgages and that they have accpeted the IBR payment amt vs the 1 percent standard. So I am looking into that as well.

 

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Re: IBR $0 total loans about 68K DTI paydown

I am late this forum but I wanted to tell you about a mortgage program called NACA. You can get more information at naca.com. They will not do the 1% or 0.5% calculation for student loans. They will accept any amount on your IBR except $0. You may have to get it changed to at least $1 or 5. But basically they work with individuals that have student loan debt. I am planning to purchase my first home through their services because I have a pretty high student loan amount that would drive my DTI up too much. I do make a nice amount but the generic calculation does not work in my favor.

 

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Re: IBR $0 total loans about 68K DTI paydown

@@cocotanel6286 @@ I recently learned about NACA from someone in a fb group I'm in, however the info about any payment but 0 was not said just that they accepted their IBR vs forcing the 1 percent. I am hoping to apply next year but I have to be back from medical leave first so I have more money coming in and fix the remainder of the old bad info on my report. I am literally due in 2 weeks so have a couple months before I can really throw more at my old stuff to clear it up. Thanks for the info I just really want a home for my kids

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