1965: Ask Farnoosh: Smart Moves After Debt, Student Loans, How to Invest Through the Noise

**Farnoosh Torabi** (0:00)
So Money episode 1965, Ask Farnoosh.

**SPEAKER_2** (0:04)
You're listening to So Money with award-winning money guru, Farnoosh Torabi. Each day, get a 30-minute dose of financial inspiration from the world's top business minds, authors, influencers, and from Farnoosh herself. Looking for ways to save on gas or double your double coupons? Sorry, you're in the wrong place. Seeking profound ways to live a richer, happier life. Welcome to So Money.

**Farnoosh Torabi** (0:31)
Welcome to So Money, everybody, Friday, April 3rd, Good Friday. Hope you're all having a wonderful end to your week. This is Ask Farnoosh Friday, and it's spring break for us. So I'm taking a little bit of a pause this week, spending some time offline with my family. But I don't, of course, want to leave you hanging today. So we're still going to dive into a lot of your questions from the mailbag, though from earlier this year, back in January. But let me tell you, they're just as relevant now as they were a few months ago. We're going to be talking about navigating student loans, family financial dynamics, what to do with extra cash once debt is behind you, and should you downgrade your life to upgrade your finances? Before we get into it, a quick look at what you might have missed this week on So Money, all fresh episodes. On Monday, we sat down with Chae Wong, serial entrepreneur and founder of a new company called Pelgo, which is helping everyday workers re-skill and stay sane in the AI economy. So we talked about what it means to re-skill right now. What are the jobs that we don't even know about that his team predicts will be here in the future? And then on Wednesday, we learned about the High Five Banking Method, a different take on budgeting, a practical system to organize your money in a way that actually works in real life. And our guest was Cyrenees Pearce. Also, quick announcement, Registration is officially open for my annual Book to Brand workshop, a live event in New York City, an immersive in-person experience. It's happening October 9th in New York. We're bringing together top publishers, top agents and authors to help all of my audience who want to learn how to write a nonfiction book or a memoir, help you build a platform that gets attention, gets that book proposal out the door and connected with the right agent. Many of our attendees have gotten fantastic results, have books on the shelves. Early bird tickets are now available at booktobrand.co.
I'll put that link in our show notes. All right, now for the mailbag. First up, Cherish wants to know, my parents took out Parent Plus loans for my degree with the agreement that I would pay them myself when the time came. I also have student loans in my own name. Now my husband and I are looking to buy a house, but I'm not sure how to explain these monthly transfers to my parents, to a lending agent, when we apply for a mortgage. In total, the transfers to my parents are about 5% of our take-home income. So maybe it's not a huge deal either way. All right, let me just start with some reassuring news, Cherish. You're not an outlier here, you're not a red flag. You're not doing anything weird or irresponsible. Lenders see this a lot, especially with millennials where parents took on parent plus loans when tuition costs exploded with a very clear understanding that their college going child would ultimately pay them back. Now, this is important to understand. Here's where people get tripped up. What lenders care most about is who legally, legally being the operative word, owns the debt. Parent plus loans belong to the parents. They are legally your parents' responsibility, even if the child, you, is the one making the payments every single month. From a lender's perspective, that distinction is important. If a loan is not in your name, it is not technically your debt. So when an underwriter is looking at your financial picture, they are looking at the debts that are legally tied to you. They're also, of course, looking at your monthly obligations. And if this is a monthly obligation, that's going to be factored in. But it's not as severe as, oh my God, she's got this debt, it's tied to this bank, and it's got her name on it. And then they also look at the big picture. Like how does this all stack up against your income? Monthly transfers to parents usually don't fall into the category of I have credit card debt, or I have a loan with a bank. They're often viewed more like family support, or a recurring personal expense. It's not formal debt, again, like a car loan or a credit card balance in your name. Now that being said, it doesn't mean that lenders ignore it entirely. Which brings us to the next key point. Your qualification for a mortgage really boils down to your debt to income ratio. That is the big metric that lenders care about. How much of your gross monthly income is already spoken for by your required debt payments. And in this case, you say that these payments to her parents are about 5% of your take home pay. That's really modest. If everything looks solid, like you have good credit, your income is stable, you have savings and all your other debts are reasonable, you and your partner, this alone is very unlikely to derail a mortgage application. And it won't even probably hurt your chances of getting a really good interest rate or closing quickly.