Student loans into mortgage?

14 Replies

Hello everyone! 
My fiancé and I currently own 2 multi families under conventional loans (a 3 family owner occupied for 3 years and then moved out to owner occupy a duplex). We each have FHA available and are looking to move forward with those soon. However, my student loan payments from dental hygiene school are limiting my investing power.
Has anyone ever rolled their student loans into a mortgage? I’m assuming it’s not possible with FHA, but maybe a local credit union? Any advice would be greatly appreciated! 
Whichever duplex or single family we buy next will be used as an investment property, therefore tenants paying my student loans. 
I have about $60,000 that I would be rolling in. Thanks! 

I cant imagine a bank agreeing to that. What I can imagine is paying off your student loans by pulling equity out of a property via refinancing.  That would work, and if you have had a cash flowing duplex for 3 years, you might have the equity that you need to make this happen. 

I think it is highly doubtful that any bank or agency would allow you to do such a thing.  Student loans are not legally discharged in a bankruptcy proceeding but a mortgage is, so the bank loses that way.   If adding $60,000 to the mortgage of a property causes it to be more than 100% leveraged, the bank would lose money if there was a foreclosure.  In short, I don't see any benefit from the lender's perspective to do such a thing.  

Now if a property has appreciated, just do a cash-out refi and pay off your student loan.   Mortgage debt is usually cheaper and you get to write off the interest payments.

I'm curious why you think your debt is "limiting your investing power"?  You've already bought two rentals.  If you are buying them correctly, each property should improve your ability to qualify for the next one.  That implies one of two things: 1) these properties do not cashflow well or 2) you are working with a bank that doesn't understand investment properties.  Both of these situations are fixable.

It's called "debt reshuffling" or student loan cash-out refinance.  

You’ll need to meet the following conditions to qualify for a student loan cash-out refinance:

  • At least one student loan will be paid off in the process – partial payoffs are not accepted
  • You have a minimum 80% loan-to-value ratio in your home
  • You’ll receive a maximum of $2,000 back once the loan is paid off

I know Quicken does these and there are a number of blogs and sites that have FAQs about them, but haven't seen any other mortgage brokers that mention them.  Finding one may be a challenge as stated by others.

@Greg Scott @Josh Caldwell We have $35,000 HELOC on our first property which we are keeping open to maintain future updates to the property and future investments. The second property we just purchased and already have $30,000 equity in the property which would not be a full loan payoff. Both are cash flowing well. I was hoping to combine my student loans into our next investments so that we can have a solid base with our first two properties to keep them cash flowing well. My student loan payments are $900/mo so I feel limited only because I want to be investing this money and find a way for the tenants to pay it, not me. I know it's a lot to ask, just trying to figure out my options. Thank you both!! I definitely think my bank could be limiting me in some ways and I am going to get second opinions soon.

Originally posted by @Sadierose Lemire :

@Ronald Allen Barney thank you for that! I think I just need to make the hard decision of getting rid of my student loan payment vs. feeling over leveraged with our cash flow. Also, what do you mean by receiving a max of $2,000 back? 

 Max of $2k cash out from the house equity over and above the student loan principle to be paid off.  In other words it can't be a combination student loan and cash-out refi.

You've done well to already buy a few properties.  As the student loan debt is bothering you, why not just pay it off faster?  Once that is gone, you have that $900/month plus less debt to increase your buying power.  Short term pain, for long term gain.

@Theresa Harris I have been following Dave Ramsey’s baby steps loosely for a little while now so I am trying to pay them down faster for sure. The only thing bothering me is the opportunity for my investments to pay for them as opposed to me. Leaving me more money now to invest sooner. It’s such a tough battle! 

@Sadierose Lemire

If interest is cheaper with the school loans keep them separate. If your school loans are 8% and you can roll them into a 3% mortgage, you win!

If there is not a large enough interest% change including fees, you waste time and money.

You owe the debts regardless of who you pay.

"You can buy a new car, and we will even pay off your current loan. Better than that, we will cut your payments! " Worst thing you can do.

I'm sure it is a challenge.  As Daniel said the interest rates make a difference, but if the debt means you can't get a mortgage, then you need to get rid of the debt first (or at least pay some down).  You're doing good.

@Sadierose Lemire

Not a tax person or CPA but have you considered opening a Connecticut 529 with yourself as as the beneficiary (assuming that is your State of residency and you have W2 income) and then taking the $5000 state deduction (10,000 if you’re married) and then using those funds to then subsequently pay up to 10K in your school loans as allowed under the CARES Act. Could save you about 500 bucks on CT State taxes.