Q: I want to get preapproved for a mortgage and I have outstanding student loans of $17,000 that are in deferred status.
I was thinking about putting the student loans into repayment because my parents are actually going to be making the payments.
Will putting the loans into repayment affect the preapproval amount I could receive?
A: After you graduate from college, or drop below half-time enrollment, you will need to start repaying your college student loans. If you have a Federal (FEEL) or Direct Stafford Loan, you’ll need to begin repaying your loans after 6 months. If you have a Federal Perkins Loan, you’ll have to begin repaying your loan after 9 months. You may opt to begin repayment at any time.
There are ways to delay repayment. If you don’t have a job, and can’t afford the payments, your student loans will be given a hardship deferral. If you go back to graduate school, your loans will again be deferred.
As far as your mortgage goes, I’m quite certain the lender will take your student loans into account. Having your parents make your monthly payments won’t affect how much cash you can borrow at this time. If your parents pay them off in a lump sum, then the $17,000 will be off your credit report, and you might be able to borrow more money.
The way lenders calculate the affect your monthly debt will have on your ability to repay a mortgage is to look at the monthly cost of servicing the debt. If your $17,000 carries a 4 percent interest rate, and you have to pay it over the standard 10-year period, your monthly payments will be about $172.
A lender would then subtract $172 from the monthly amount you have available to pay for your mortgage, plus real estate taxes and insurance. Having another $172 per month to put toward your mortgage might give you another $20,000 to $25,000 in purchasing power, depending on the interest rate you’ve been quoted.
That would be nice, and it could make a big difference in the type of starter house you’re able to buy. But unless your parents are willing to take this debt off your books, there may not be anything you can do.
Talk to your mortgage lender about your options and the fact that your parents have agreed to make the payments on your school loan.
Good luck — and don’t forget to thank your parents for helping you pay off this enormous, but important, debt.
Published: Dec 12, 2005