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Student loan borrowers who use an income-driven repayment plan -- about 30 percent of all student loan borrowers -- often face confusion and can be at a disadvantage when taking on a home mortgage, according to a new research brief from the Urban Institute.
Mortgage underwriters look at a borrower's debt-to-income ratio when determining whether to issue a mortgage. Student loan payments are factored into this ratio. And the five federal institutions that back two-thirds of mortgage originations in the U.S. have developed five different ways of taking IDR plans into account in their underwriting.
"All five government institutions should use the same standard for accounting for IDR when underwriting mortgages, a standard that makes the most sense from an underwriting standpoint," the think tank concluded.
