A reader asks, “I have significant student loans, but my parents make all payments on the loans because they had promised to provide my education as a gift (this was a commitment they made before I made the decision to pursue my education).”
“They have made timely payments for three years, and they intend to continue to make payments until the loans are paid off. Can they guarantee future payments so that I can remove the loans from my debt-to-income ratio?”
There are two basic factors at work when the lender is reviewing a borrower’s debt-to-income ratio. One is the borrower’s current debt load compared to the amount of income coming in. The other is how the new FHA loan payment would affect that debt load.
Since the debts in this reader question are in the borrower’s name, those debts would have to be considered, regardless of the extenuating circumstances. However, the fact that there is a payment being made on the borrower’s behalf may or may not be considered as a compensating factor.
The basic answer to this question is that it may depend on the lender. A strict interpretation of FHA loan rules might lead one to believe that the borrower’s debts in this case are simply included in the ratio but not the payments from the parents.
But if those payments are “likely to continue” in the eyes of the lender, there might be some flexibility possible. But saying that should not be construed as a guarantee or a promise that such arrangements will be approved by the lender or the FHA.
Matters such as these would be handled on a case-by-case basis. Borrowers should be prepared to fully document the situation, get written guarantees or other certifications that might convince a lender to favorably view the arrangement. But at the end of the day, it may be the lender’s call or the decision might be made based on the requirements of the financial institution or even the applicability of state law.
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