FHA Loan Rules on Student Loan Debt

July 30, 2014

Here's a not-so-common question about FHA home loans that does affect more people than ever these days thanks to the rising costs of education and how some families choose to deal with those costs.

"My student loans are in my name...but my parents pay the loans…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."

This is a tricky issue and your experience may vary depending on the circumstances of your loan application, the lender, and other factors, but in general it's good to remember that any debt listed in your name can and probably will be included in your debt-to-income ratio calculations.

The borrower who has a parent paying that debt every month may be able to show the cash "income" from that debt payment is stable and reliable (especially if it's been consistent for two years or more) but the borrower will need to ask the lender if that is possible and under what circumstances it may be possible to offset the debt with the payment by the parents.

The best 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.

Remember that your loan officer is required to ask some relevant questions–what if the parents stopped paying the monthly student loan amount? Can the borrower still afford the home loan? Keep these notions in mind when trying to decide your best move with regard to a home loan. If the borrower could still afford the loan, would the parents paying the loan be considered a compensating factor? Getting your other debt to income ration issues addressed and lowering the overall amount of your debt could also work in your favor in these cases.