Mortgage For College Graduates Lending Guidelines
Good news for recent college graduates who got job offer letters by full time employers.
- Mortgage for college graduates are no problem without much established credit and the mandatory two year work experience required by lenders for home buyers
- However, there are new changes in FHA guidlines that may affect qualifying for mortgage for college graduates
- One drastic change in FHA mortgage lending guidelines that took effect on September 14, 2015 is that deferred student loans are now counted in debt to income ration calculations on FHA Loans
- This holds true even though the student loans have been deferred for more than a year with FHA Home Loans
- Recent college graduates who have substantial student loan balances who get jobs in entry level salary positions may have issues qualifying for FHA home loan by themselves
- May need a non-occupant co-borrower or borrowers to be added in order to qualify due to the large student loan balances
- FHA allows for more than one non-occupant co-borrower to be added to the main borrower for qualification purposes
In this article, we will discuss and cover Mortgage For College Graduates Lending Guidelines.
Income-Based Repayment On Conventional Loans
Great news is that Fannie Mae and Freddie Mac will allow income based repayment plans as long as the IBR payment reports on all three credit bureaus.
- Borrowers with large outstanding may try to qualify for conventional versus FHA loans
- Gustan Cho Associates is a national mortgage company with no overlays on government and conventional loans
Mortgage For College Graduates With No Employment History
All mortgage loan programs require two years of work history and two years of residential history. Most college graduates do not have work history.
- However, a student’s college transcripts can be used in lieu of the two years work experience history
- The college graduate needs to provide the mortgage lender their college transcripts
- To qualify for mortgage for college graduates, the college graduate needs to have a full time job and provide a full time job employment offer letter
- Since the college graduate did not have two years employment history, the past two years of tax returns and/or W-2s cannot be used and the income that will be used to qualify income will be their current job offer letter income
- Mortgage For College Graduates need to be full time employment and part time employment does not count
- If the college graduate has a part time employment after college graduation, that part time income and employment needs to be seasoned for two years
However, with full time employment, they can enter into a real estate purchase contract and close on their home after providing 30 days of paycheck stubs from their new employer.
Mortgage For College Graduates With Deferred Student Loans
Major changes in mortgage guidelines on student loans with FHA Loans have been implemented on September 14, 2015 where deferred student loans that have been deferred for more than 12 months now count in debt to income calculations.
- Prior to September 14, 2015, deferred student loans that have been deferred for more than 12 months were exempt in calculating the mortgage loan borrower’s debt to income ratios
- This is no longer the case and this new law on deferred student loans will affect many recent college graduates who have high student loan balances, especially those with graduate degrees and professional degrees such as medical degrees and law degrees where student loan debts can exceed over $200,000
- If you have a parent making the student loan payments and they have been making the student loan payments directly to the student loan provider for the past 12 months, then the student loan payments can be deducted by the borrower
- This holds true as long as the parent can provide 12 months canceled checks and/or bank statements showing the funds being wire directly to the student loan provider
- If the parent is depositing the exact student loan payment amount to the borrower’s checking account and the borrower is making that same exact amount to the student loan provider, this can work
- Depends on the lender and the individual mortgage underwriter
- This will be on underwriter discretion
Barriers In Qualifying For Mortgage For College Graduates
After September 14, 2015, all student loan payments will be counted towards the calculation of borrowers. This is even though the student loan is in deferment. If the student loan payment is zero due to the fact that the student loan is in deferment, the mortgage lender needs to establish a payment for the amount of monthly student loan debt. If the borrower does not know what his or her student mortgage loan payment will be after it is out of deferment, then the mortgage loan underwriter will take 1% of the student mortgage loan balance and use that figure as their monthly debt payment in calculating their monthly student loan payments. However, if the borrower can get a monthly payment of their student loan payment after the deferment period by the student loan provider, than that figure will be used in the calculations of the student loan payment. It needs to be in writing by the student loan provider. As mentioned earlier, Income Based Repayment (IBR) is allowed on conventional loans. Home buyers with larger outstanding student loan balance should try to qualify on conventional loans.
Ken Yamat is an underwriter at BancorpOne, Inc.