Student Loans for Downpayment?

[Anonymous]

It's funny how I'm alway's getting different answers depending on who I'm talking to. I got conflicting responses to this depending on who I ask.

Simple Question: Can my wife use MY student loans for a down payment on her FHA loan IF I am not going to be on the loan?

My student loans exceed my tuition payments, but my credit isn't great and we will be better off having her apply on her own.

[Anonymous]

Generally down payment/closing costs can not be "borrowed funds" except from a 401K.  This is one of those situations that would mean you taking the money from your loans and then gifting it to her.  THe issue is that lately they want the gift money sourced, so unless you can show it ocming from somewhere other than the loans the answer is no.  It is the type of thing that used to happen and that will still occasionally slide by an underwriter, but if everyone is being honest, no it is not allowed.  Most cases where it does go through probably have to do with the buyers not being fully upfront with the lender and the lender not sourcing the gift funds very deeply.  Gift funds most come from available money, not any type of loan or advance.  

[ShanetheMortgageMan]

With FHA, this actually will be fine.  The donor may borrow funds that are to be gifted to the borrower.  It's a common misconception since the borrower often may not borrow the funds for the down payment.

See the below.

http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.5.B.5.b

If the gift funds ...

• are being borrowed by the donor, and
• documentation from the bank or other savings account is not available

have the donor provide written evidence that the funds were borrowed from an acceptable source, not from a party to the transaction, including the lender.

Bet most people also did not know that the borrower can borrow the money for down payment if it is from a family member - either as secured (against the property) or unsecured.

http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.5.C.2.d

FHA permits family member lending on a secured or unsecured basis, up to 100 percent of the borrower's required funds to close. This lending may include the down payment, closing costs, prepaid expenses, and discount points.

Further guidance on "Family Member Financing" can be found at http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.5.C.6

[Anonymous]

good to know.  I thought they did not allow that because the chance of it not being real "gift" money and needing to be repaid was too high.    I know I have seen/heard that on here.

[ShanetheMortgageMan]

Often underwriters need the bank statements from the account the gift is coming from, to make sure it's not a joint account with a party to the transaction or that the funds weren't borrowed from a borrowers credit card, given to the donor, which is then gifted back, etc.

[Peach8321]

larry,

a little off topic...but have you considered reducing the amount of your student loans instead of using the money for another loan?  Really, you should only borrow what you need for student loans...the "extra" will still have to be paid back.

Additionally, if you don't have enough for a 3% downpayment (FHA loan), perhaps you should put off buying until you do.  I only say that because we have put probably $30k into our house already (16 mo owned) and our ceiling is leaking and we have a broken fence that also need to be replaced.  Houses cost a lot and you should be prepared to pay those costs without borrowing from Paul (student loan) to pay Peter (mortgage).

Sorry if that's not what you want to hear, I just thought it was important to say.