Float student loans until 8000 tax credit?

[air bud]

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My fiance and I are interested in buying a home before I start podiatry school this year. Neither of us have ever bought a house and she will begin making 40k this year at a hospital. We have a cosigner so don't need to worry about the year of w2.

My question is if it is a good idea to use student loans (i have no debt and don't need the loans, just getting 10k or so this year just in case) to help with 3.5% downpayment. When we get the 8000 ish refundable tax credit, i would just use that to replace my lost student loan amount.

good idea?

 

[Sol Rosenberg]

Be careful. Usually, the loan application requires you to state somewhere that "no part of the down payment is borrowed," or something to that extent. You usually only have to provide 2 months of savings account records (check with your lender) so if you took out the loan before then they wouldn't know (besides seeing the extra student loan on your credit report.)

 

[Hallm_7]

It may actually be illegal. Federally subsidized school loans are supposed to be used only for educational expenses. I seriously doubt a downpayment on a home counts. I know it is illegal to use school loans to invest in equities or other investments even though many do it without getting caught. These loans are guarenteed by the feds, and have a subsidized interest through deferment and in terms of actual interest rates. The government doesn't want to pay for the interest on your down payment for a house.

 

[Aznfarmerboi]

It may actually be illegal. Federally subsidized school loans are supposed to be used only for educational expenses. I seriously doubt a downpayment on a home counts. I know it is illegal to use school loans to invest in equities or other investments even though many do it without getting caught. These loans are guarenteed by the feds, and have a subsidized interest through deferment and in terms of actual interest rates. The government doesn't want to pay for the interest on your down payment for a house.

Well... to be fair, living and transporation is considered to be part of educational expenses. It is usually taken into account when a person applies for financial aid.

 

[schwab]

Be careful. Usually, the loan application requires you to state somewhere that "no part of the down payment is borrowed," or something to that extent. You usually only have to provide 2 months of savings account records (check with your lender) so if you took out the loan before then they wouldn't know (besides seeing the extra student loan on your credit report.)

I'd say this will be the biggest issue you'll face. If you can, say, get a gift from a family member for the amount of the down payment (or a large enough chunk that you can pay the rest yourself) along with a letter stating that it won't need to be paid back, that may be your best option. The tax free gift amount for 2009 is $13,000, I believe. If you were to do this, then when you get the $8000 (which you can get now if you purchase your house soon and amend your 2008 return), you could give them a gift in thanks for their gift.

When I purchased my house several years ago, I got what is called a piggy back loan - a first mortgage loan for 80% of the purchase price, a second loan for 15% of the price and i paid 5% down. Perhaps this would be another option?

 

[dragonfly99]

When I purchased my house several years ago, I got what is called a piggy back loan - a first mortgage loan for 80% of the purchase price, a second loan for 15% of the price and i paid 5% down. Perhaps this would be another option?

It might be hard (or impossible) to get one of those piggyback loans right now with the credit crunch being what it is. At least that has been my experience. However, you might do better depending no how things are in a few months, and also what part of the country you live in.

You could try and get a FHA loan. The down payment required is only 3.5%, and it may be permissible to use a gift for part of all of the down payment (not sure, but you could google FHA loans or US Housing and Urban Development and find the rules on the federal web site).

Depending on where you live in the country, you might be able to get a decent little house that you could pay for just with your wife's salary, if she is really going to be making 40k/year...

 

[schwab]

It might be hard (or impossible) to get one of those piggyback loans right now with the credit crunch being what it is. At least that has been my experience. However, you might do better depending no how things are in a few months, and also what part of the country you live in.

I was kind of thinking that when I typed it in. I'm hoping it's still an option for some folks as it definitely helped me out when I was just graduating from undergrad.

 

[Sol Rosenberg]

I was kind of thinking that when I typed it in. I'm hoping it's still an option for some folks as it definitely helped me out when I was just graduating from undergrad.

Piggyback loans were never considered "subprime" and are still around. They are my favorite loan. However, the lowest downpayment piggyback loan available right now is most likely an 80/15/5 (like you took out,) -- 80/20s are long gone, I think. The OP was saying that he was having a hard time coming up with a 3.5% downpayment; hence the reason for this thread.

Also, FHA loans also have the clause that the downpayment can't be borrowed (or at least they did.) My very first loan WAAAAAAY back was an FHA loan, and I remember signing that....