Question: I will be graduating from university soon, and will be matriculating in law school at (hopefully) Georgetown University. I will be paying for it entirely with student loans, and hopefully a little bit of scholarship.

I can’t stomach the idea of paying $700/$800 a month in rent, and just putting it in somebody else’s pocket, so I want to purchase a house instead. I have friends who have done so, gotten low closing cost mortgages on 3 and 4 bedroom places in the city, and then rented out the extra rooms. $150,000 place comes out to a little over $1000 a month mortgage payment. Rent out the two bedrooms for $550 each (very cheap for the area) and they’re paying your mortgage for you.

Here’s my question… Can I use my student loan money to pay the mortgage payments? Will the financial aid people just say average rent for students at Georgetown is $xxx, and give me that amount, or will I have to show how much my rent is? Will they allow the loan money to go towards a mortgage rather than a rent?

Also, is it even possible to qualify for a mortgage in my situation? Will they consider the $30,000 a year or so in student loans as income? Would I be better off using my parents (who have a mortgage on their own home in another state), and having them “buy” the house and get the mortgage and everything, and I would just be the one supplying all the money?

What are my options here? What type of mortgages should I look for? What trouble will I have with the student loan people?

Thanks for any help that anyone can give me.

PLEASE e-mail me as well as posting in reply to this, as for some reason about half the messages that go up don’t show up on my server.

Thanks in advance for ANY help or ANY tips that anybody can offer me!

Answer: The amount of your student loan award will be determined based upon what you report in your FAFSA, the costs associated with your school, and whether or not you live with your parents. Financial Aid departments do not ask whether you rent or own because award amounts are not based on expenses associated with specific living situations (e.g. “I need more because I have an expensive place.”)

To answer your specific question about whether you can pay a mortgage with student loan money, a mortgage payment is an educational expense (board) so you can use a student loan to make a mortgage payment. Plenty of people do it. The only specific prohibition that used to exist was that student loans could not be used to purchase a vehicle, but that rule is not found in the current promissory note.

As for whether or not you’d qualify for a mortgage, I’m not completely sure. I will offer a guess, though, which is probably not. Even if a lender were willing to count your forty thousand dollars in student loans as income that income level is not high enough to qualify for a 150k mortgage. I would think your only chance would be to get a no income verification mortgage which would require at least a 20 percent down payment, or to have your parents buy the house.

The above information applies only to federal subsidized/unsubsidized loans, of which the maximum you could obtain is 27,000 a year, and not other types of loans (those not guaranteed by the federal government) that may be obtained to attend law school. Student loans are intended to help pay for the cost of attending college. Housing is a cost of attendance.

But will a bank lend you the money? I kind of doubt it. Any lender always asks: can he afford to pay it back, and will he? You probably have very little credit history and I doubt that a bank is going to consider the proceeds from one loan as being income to pay off another loan. Your loans are just debts to be paid eventually – debts that will have to be paid on top of the mortgage payments.

Any purchase would probably have to be made by your parents. Parents have bought houses for students to live in and rent out, but you’ll want to give that move a lot of thought – you’ll want to select your property very carefully (values do go down as well as up) and are you prepared to act as landlord with all the hassles it can bring?

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