Can a Seller Pay Off My Student Loan Debt?

Can the VA loan really help me pay off my student loan debt?

The short answer is yes. Exactly how?

The VA loan allows sellers to contribute up to four percent of the sales price towards buyers’ closing costs. Now, for most of us as lenders, real estate agents, and buyers, we might know closing costs to be the title fees, prorated taxes, insurance, any lender costs that are associated with it – those being closing costs to buy the home.

So, a lot of us assume that’s what it has to go towards. But the VA loan also allows those closing costs to go towards payoff of buyers’ debts, helping them free up monthly cash flow.

Now, why would the VA allow that? Because if we can free up debts of the veteran and give them more monthly cash flow, it helps make that home an easier decision to make. It’s easier to afford each month.

So, the VA allows us to take some of those closing costs if we have leftover dollars and apply them to paying off debts. What does that exactly look like in reality?

Well, let’s say as a buyer you end up having ten thousand dollars in seller concessions. So, ten thousand dollars can go towards paying for the title fees, the escrow, all that good stuff, and let’s say that’s five thousand dollars’ worth. So, of that ten thousand, five thousand goes to pay for that.

Now, you have five thousand left over. Now, conventional wisdom, what you might hear from a lot of lenders is, “Oh wait, now we need to use that to pay down the interest rate, to buy points, or apply it towards other lending related things.”

That’s not necessarily the case with a VA loan. You can actually take that five thousand and go pay off some of your debts. The key is you have to be able to pay off the full debt, again helping you increase that monthly cash flow that you have.

So, in the past, we have used those funds to pay off credit cards, student loans, and even car payments if you have enough left over and the balance is low enough, or it can fit within that seller concession.

So, know that you can take those leftover seller concessions and apply them towards that. Now, some folks ask, “Do I have to put it towards closing costs?” And the answer is no. You can even take the four percent and start applying it towards those debts right away.

So, the key is, using the VA loan, you have the ability to take seller concessions and apply them towards debts. And the reason is because the VA is trying to say, “Hey, if we can help you free up more monthly cash flow, that’s going to help you qualify for this loan and make that home a blessing for you in the long run.”

Hope this information helps you go out there and win a home with the VA loan. I’m Evan Kaufman, your VA loan originator.