Getting a mortgage with large student debts

jl46 · November 2011

Hi, my fiance has an excellent credit score and virtually no credit card debt. However, he has a lot of student debt. Let's say around 100k (not in deferment). He does have the means to pay it though, through a trust fund set up by his grandparents that is 100% his.

If we were to apply for an FHA mortgage, would they look at his student debt and say hell no to us despite the fact he has assets (the trust) worth significantly more than the student debt? or, will they take that into consideration?

Anyone been in a similar situation?

sonrisa · November 2011

If the trust fund covers the payments in full and you can document it I can't imagine it would have any effect on your ability to borrow. Even if it doesn't, it might not be an issue (depending on your income).

My husband had around 100K in med school debt (and I had law school and undergrad debt) when we applied. However, they had low fixed interest rates and, consequently, low monthly payments (just under $500 total). They looked at the monthly payments and those were less than the acceptable debt for our income level. As a result it had no effect on our ability to borrow. (We initially were pre-approved for an FHA but decided to put the full 20% down to avoid the fees and have lower monthly payments).

makinithappen · November 2011

I don't believe having the funds to pay them off offsets the debt as there is nothing saying you won't spend that money on something else and not have that asset while still having the debt. When I bought my house, they looked at the future payment (I was still in school) and added it as a normal debt. I was able to get a house that was affordable with my SL payments.

emisi · November 2011

Do his student loan payments add up to a large portion of his income? If his debts don't add up to a huge chunk of his income, he should be fine. I have a fair amount of student loans (not nearly as high as his, though) and got a loan with no problem because the sum of my debts wasn't a huge percent of my income.

LiebeMama · November 2011

100,000 of school debt? Oh I almost fainted. Is he just applying for the mortgage in his name alone or yours as well?

msmerymac · November 2011

They're more likely to look at his debt-to-income ratio. If that debt is eating up 50% of his income, it will most certain affect his ability to qualify.

In that case, you have 2 options. Use the money to pay down/off the debt or accept the lowered mortgage approval (if possible) and use the money for a larger down payment.

angiem33 · November 2011

Between H and myself we have $440,000 in student loans. No problem getting financed at all.

The other considerations are more important, debt-to-income, credit score, etc. etc.

Susie Derkins · November 2011

We bought our house with > $250k in student loans in repayment between us. And no trust fund. We refi'ed last year for a better rate, no problem again.

It's fine as long as your income is sufficient to make the monthly payments on both the SLs and the mortgage.

akalei2204 · November 2011

I have around $90K total from law school. I'm in a clerkship, so I decided on income-based repayment for these two years (though I plan to pay about $1000 a month, that way I'm attacking more of the principal... the government can suck it with their interest rates!). Even at a standard, 10-year repayment plan, we were approved for a conventional AND FHA mortgage--we had the option of choosing. It's not so much how much debt you have, but 1) your debt-to-income ratio, like other people said, and 2) whether you've paid it on time, so as not to mess up your credit score.

Getting a mortgage with large student debts

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