July 3, 2014
A reader asks, “My dad took out a Parent plus loan for me while I was in college. The loan is in his name but I make the monthly payment. My husband and I are applying for a mortgage and I was wondering if the monthly payment I make is going to count against my debt to income ratio in the lenders eyes even if the loan is in my dad’s name and not on my credit?”
“I know we will be providing bank statements so I assume they are going to see the payments made per month and I just wanted to be prepared either way.”
This is a situation the reader should definitely discuss with the lender–technically speaking the reader is not financially obligated on the loan mentioned in the question. But the regular payments might make the lender ask about the nature of the arrangement.
If the borrower has something in writing stating he or she is obligated to make the payments, that could be considered a financial obligation by the lender. If there is a less formal agreement, the lender may or may not count the outgoing payment as part of the borrower’s debt to income ratio.
All this could depend greatly on lender standards, but since the loan is technically in someone else’s name, it’s entirely possible it might not be included in the debt to income ratio. State law may play a part in this, depending on circumstances.
For best results it’s always best to consult with the loan officer in these cases as the gray area may require a bit of additional research by the loan officer.
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.
Browse by Date: