So you just finished up your MBA, law school, or med school? You picked up a great six figure consulting gig at a major strategy consulting firm. Maybe you snagged a position with a BigLaw firm. Regardless, you worked hard and now you want your own crib. No more renting in the same building with undergrads!
Buying a home after finishing school is not much different from when you are already in the work place. Lenders will evaluate your credit, assets, and income just like they would any other borrower. However, there are a couple of small differences that grad students need to be aware of when deciding to purchase a home after graduation.
Start Dates: The biggest challenge that students often face is coordinating their new home purchase with starting their new job. Often times the graduate has to relocate to a new city and purchase a home prior to starting work. For example, you are finishing up at Kellogg in June and decide to stay in Chicago. You don’t start work with your new company until after Labor Day. Obviously, having the summer off so you can find a home and move into your new place is convenient. However, this can cause obvious problems for mortgage lenders because, technically, you are not yet employed. All you have to prove that you will have a job is an offer letter of employment. It is possible to close prior to starting your new job. If your loan application is packaged properly by the loan officer, most lenders will allow you to close approximately sixty days prior to your official start date. It is important to understand that lenders do this on an EXCEPTION basis. The lenders will also want to see that your credit and assets are above average as well. Finally, remember that not all loan officers are familiar with graduate and professional schools, so make sure you are working with someone who understands the unique situations and knows how to properly present the file. Every spring and summer I have to step in a save a deal a week or two before a scheduled closing because a lender wanted the borrower to have started work and would not accept the offer letter of employment. I have seen this happen on more than one occassion, especially with the call center oriented places like E-Loan, Quicken, and god forbid, LendingTree.
Non-permanent residents: If you are not a US citizen (non-perms), it is still possible to obtain a mortgage to buy a home. Like your US classmates, your income, credit, and assets will be evaluated by the lender. If you have been in the US long enough to have an established credit history with a valid FICO score, for the most part you will be treated like a US citizen. However, you will also have to show a valid Social Security number and visa establishing legally residency and authority to work. The most common visa received by graduate students who go on to live and work in the US is an H1-B although there are other categorizations. Because H1-B’s take can take several months to process, most lenders will allow you to use your temporary Employment Authorization Card along with documentation from your future employer showing that the H1-B has been applied for as proof of legal residency. Where most non-perms run into problems is lack of credit history. You should start establishing credit as soon as possible so we can get a valid FICO score. Here is more information on mortgages for non-US citizens.
Zero Down Loans: You don’t need to have a down payment to buy a home. Most lenders offer competitive zero down programs for a wide range of qualifications. In many cases, the rates are the same as mortgages with down payments. In addition, with good credit, private mortgage insurance (PMI) is usually not required. The bottomline is save your signing bonus.
Student Loans: I often get a lot of questions about the impact of student loans. Most mortgage lenders will count the payment in your debt to income ratios even if the loans are deferred for a period of time. If you can afford the payment along with your mortgage, the amount of student loans is inconsequential. Some lenders offer programs especially for Doctors where they will ignore student loans while the Doctor is in residency. However, this is not the case for MBAs and attorneys.
As always, if you have any questions, don’t hesitate to give me a call.
Russ:
I am a first year law student. My wife is completing her bachelor’s degree.
We own a house with at least 20% equity in a “good” market.
Credit’s good, but not stellar.
We have no income; living on loans.
Part of the rational for moving is to lower our house payments, therefore we are shopping for a “cheaper” house.
In your opinion, are we going to be able to find a willing lender (especially given current credit market circumstances)? Is a land contract an option?
Carl:
You are going to have a hard time getting a mortgage. The reason is that lenders only care about current income. Student loans do not count as income, only debt.
I have seen people with a million in the bank have a hard time getting mortgages because they may be retired or can’t show enough income to service the debt even though they have enough liquid cash to payoff the mortgage. Banks aren’t know for common sense.
Is this looked at any differently for an adult student getting their bachelors instead of a masters?
My husband is a full time student finishing up his bachelors and we’re hoping to buy our first home around the same time he gets an offer letter. He hasn’t worked in the last 2 years because of school.
I have a solid job (2 yrs at the same place since I graduated with my masters) with a good income and will be the primary on the loan. But we will probably be just under on the income requirement for the houses we’re looking at if only mine is considered.
We have 5% to put down and I have over a 700 score, but his is in the mid 600s (we’re working on bring this up as well).
Do you think we’d be able to find a lender willing to work with our situation?
I’m going to be a graduate student, and I will receive a stipend which is guaranteed for the next 6 years. I haven’t had steady employment for the past 2 years since I am currently and undergrad student. I also don’t have any student loans, debt, or car payments. I’ve found houses that I can afford (I’ve run through the numbers). Will I be able to get a mortgage?
Thomas:
You can use your stipend as income as long as you have a contract that shows it will continue for at least three years so you should be able to get a mortgage. Feel free to call if you have any questions.
I graduated law school and have accepted an offer to work for a fir in Dallas. My wife and I are trying to get closed before the tax credit expired, but we are having a hell of a time getting a loan with my offer letter. I know my salary and my start date, but nothing seems to get the ball rolling.
Matt:
Unfortunately, I don’t lend in TX anymore, otherwise I would be able to assist you.
It is getting much tougher to close prior to starting your job these days, but it is still doable.
Email or give me a call and I will give you some direction. My contact information is at the top of the webpage.