March 11, 2015
A reader asks, “Our daughter and son in law are trying to obtain a FHA loan. They are only using my son in law for the loan because our daughter’s credit score is too low. However his income/debt ratio is too high because of a car loan.”
“We have agreed to pay off the car to lower the monthly income/debt ratio. Their combined income is enough to cover the mortgage and pay us back. How will this affect their loan application?”
Unfortunately, there’s no clear way to address this question for a variety of reasons. There are many variables including whether or not the couple resides in a community property state, where state law will have a say in how the lender may or may not consider the FHA loan application of a spouse who is applying for the loan alone.
FHA loan rules don’t override state community property laws, so the laws in such states would have to be taken into consideration as part of the loan approval process.
Another variable is the debt-to-income ratio. The reader asks if taking over the borrower’s car payment will reduce the debt to income ratio enough to affect the loan application.
But there’s no way to tell because the ratio percentage is not known, nor is the amount of the car payment or whether the lender will be required to consider the borrower’s indebtedness to the person paying off the car loan in the debt to income ratio.
These issues can be tricky and it’s best to discuss them with the lender who is working the numbers, the percentages and related issues on the application. Don’t forget that lender standards also play an important role in questions like these–just because the FHA loan program itself has certain minimums doesn’t mean that the lender won’t require a higher standard.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for review before posting.
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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