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I am a few years out of professional school, and am starting to think about buying a home. Based on my credit, income, and available down payment, I would be easily eligible for a good-size mortgage. However, I still have a massive amount of student debt (several hundred thousand dollars).

My unusual circumstance, though, is that I am on a loan repayment assistance program (LRAP) through my school. The program works as follows: At the beginning of each year, based on my income, the school determines how much of my debt I am obligated to pay (a relatively low amount). It then writes me a check for the difference between that amount and my total loan payments for the year. I then make monthly loan payments myself. The LRAP requires me to keep my loans on a ten-year repayment plan, and makes it pointless to pay them down more quickly. As long as I remain in qualifying employment (public service), my loans will be completely paid off in about 5 more years with me only having paid a small fraction of them. The LRAP benefits are non-taxable.

My fear is that lenders will only consider my actual loan payments and not consider the LRAP money as an offset. If that's the case, my debt to income ratio will basically preclude me from getting a mortgage. Does anyone have any experience with this? Any advice is welcome.

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How would having a 20% down payment change the conversation for you? And who are you looking to get a mortgage from? If you go to a local community bank or credit union, you might have a better chance explaining your situation and having them take that into account rather than going to one of the mega-banks (Bank of America, Chase, Wells Fargo, etc) who may only look at your FICO score when making a lending decision.

The thing to keep in mind is "how much of a risk are you to the lending institution?" If you have a strong down payment 15% to 20%, you will be a much better candidate. Bear in mind, anything less than 20% down will require PMI (Private Mortgage Insurance, which I think runs a certain dollar amount per $1k you have borrowed). If you have a strong downpayment, and the only debts you have are your student loans (which will be paid off in five years anyway), then you are far less risky than someone in a similar situation with more debt.

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