May 23, 2014
A reader asks, “My student loans are in my name, because my parents wanted to get my credit/payment history started early, but they pay the loans…It is a blessing that they pay them every month, but if I went to get an FHA mortgage for a first time home buyer would I have to count that $350.00 per month loan expense or could they write a letter or prove that they are actually the ones that get the bill and pay it? This really makes a difference when I check the amount I could potentially be approved for.”
The answer to this question may depend on the lender, but in general the student loan debt is in the borrower’s name and that is the key to understanding the issue.
The lender may (or may not) be willing to work with a borrower who can show documentation that this loan is being paid by a third party (the parents, in this case) every month, but nothing requires the lender to do so. The borrower’s debt to income ratio still needs to be calculated by the lender and this would be a factor.
The bests thing may be to discuss this situation with the loan officer ahead of time and see what paperwork may be required if the lender is willing to consider the payment as a compensating factor.
Any debt in the borrower’s name could be counted against the debt-to-income ratio. The lender is required to ask tough questions–for example, what if the parents stopped paying the monthly student loan amount? Can the borrower still afford the home loan?
Knowing that the lender must answer such questions is half the battle when it comes to understanding the processes at work in determining loan approval.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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