Have you tried to buy a home with a big student loan balance?

Getting a mortgage while holding student loan debt can be tricky — and not just for the obvious reason (a big loan payment can be a budget killer).  When making mortgage decisions, lenders sometimes don’t know how to treat all the various repayment plans that student borrowers can utilize.

Recently, I wrote about some changes that might help would-be home buyers in this situation for MagnifyMoney.com. Basically, borrowers on reduced income-based repayment plans — there’s about 6 million of them — will get a break now.  There’s a short excerpt below, but you can read the full story at MagnifyMoney.

The story ended up being more complicated than I expected, and that had me wondering: what is it really like buying a home when you (and your partner?) have student loans?  Please let me know in email or in comments below.

Here’s an excerpt:

 Student loan borrowers who are making reduced income-driven repayments on their loans will have an easier time getting mortgages under a new policy announced recently by Fannie Mae.

Nearly one-quarter of federal student loan borrowers benefit from reduced monthly student loan payments based on their income, Fannie Mae says. However, there’s been some confusion about how banks should treat the lower monthly payments when they calculate a would-be mortgage borrower’s debt-to-income ratio (DTI): Should banks consider the reduced payment, the payment borrowers would have to pay without the income-based “discount,” or something in between?

It’s a tricky question, because student loan borrowers have to renew their qualification for the lower payments each year, meaning a borrower’s monthly DTI could change dramatically a year or two after qualifying for a mortgage. The banks’ confusion over which payment amount to use can mean the difference between a borrower qualifying for a home loan and staying stuck in a rental apartment.

There’s even more confusion when a mortgage applicant qualifies for a $0 income-driven student loan payment, or when there’s no payment amount listed on the applicant’s credit report. Previously, in that situation, Fannie Mae required banks to use 1% of the balance or a full payment term.

As of last week, Fannie has declared that mortgage lenders can instead use $0 as a student loan payment when determining DTI, as long as the borrower can back that up with documentation.

That announcement followed another Fannie update issued in April telling lenders that they could use the lower income-based monthly payment, rather than a larger payment based on the full balance of the loan, when calculating borrowers’ monthly debt obligations.