Mortgage For Recent College Graduates
This guide will cover mortgage for recent college graduates with no work experience. College seniors throughout the country are interviewing for jobs. Many college seniors have either May or June graduation. Many will have job offers via offer employment letters long before graduation. Alex Carlucci of Gustan Cho Associates explains the vast number of college graduates buying homes after graduation:
College graduates are eligible to purchase a home without prior job experience. Being in college counts as work experience. If you have been in college for the past two years full time, that is equivalent as having two year full time work experience.
Many college seniors have a good dilemma of receiving multiple job offers. Deciding which job offers to take can be a good stressful thing. Depending on the graduate’s major, many college seniors get job offers of upwards of $100,000 annually. Especially those graduating with technology majors such as computer science, web development, IT, or other high-tech fields. The great news is that college graduates can qualify for a mortgage right out of college without work experience. Recent graduates can be homeowners without providing a two-year employment history and not needing a mom or dad to co-sign for a mortgage loan.
Mortgage For Recent College Graduates Lending Guidelines
To qualify for home loans, borrowers need two-year employment history and proof of income. Mortgage lenders will also require the following:
- two years’ tax returns, if applicable
- two years W-2s if applicable
- verification of employment if applicable
- recent paycheck stubs and the likelihood of three years of continuous employment
However, many college graduates have no full-time employment history. Some never worked a day in their lives. The great news is that mortgage guidelines do not require full-time employment history from full-time students. A college or vocational school transcript can be substituted for work experience. No work history is required. High school graduates with a new full-time job and an offer of employment letter can also qualify for home loans.
Job Offer Letter From Employers
Suppose a student gets a job offer letter from a prospective employer. In that case, a mortgage lender will most likely issue a pre-approval after reviewing the application and credit report and go off the job offer letter or employment contract. The student can then look and shop for a home and enter into a real estate purchase contract.
Most mortgage lenders want to see 30 days’ paycheck stubs before they will issue a clear to close. Some lenders will go off an employment contract and request that the borrower provide paycheck stubs after closing on their home loan.
Down Payment and Closing Costs on Mortgage For Recent College Graduates
Most college graduates will be limited to reserves. All home purchase lenders will require down payments and closing costs. VA and USDA loans are the only loan programs that do not require a down payment on a home purchase. Most home buyers do not have to worry about closing costs.
Most closing costs can be covered through a seller concession or lender credit toward closing costs. However, the down payment needs to be documented funds. The good news is that the down payment can be 100% gifted by a family member or relative. FHA requires a minimum of 3.5% down payment. Conventional loans require a minimum of a 3% down payment.
Student Loans When Qualifying For Mortgage For Recent College Graduates
Most college graduates have tens of thousands of student loans, and these student loan payments can affect a mortgage loan applicant’s debt-to-income calculations. Lenders will use 0.50% of the outstanding student loan balance as a monthly debt on deferred student loans on Conventional, FHA, and USDA loans. Income-based repayment can now be used for those in an IBR payment plan.
Income-based repayment (IBR payments) can now be used for conventional, FHA, VA, and USDA loans.
If borrowers have substantial student loans in deferment, they can contact a student loan provider and get a fully amortized monthly payment over an extended term (normally 25 years). That figure can be used if the fully amortized monthly student loan payment is lower than 0.50%. It normally turns out to be 0.50% or lower of the outstanding loan balance. This amortized monthly payment needs to be in writing by the student loan provider.
Mortgage Guidelines on Deferred Student Loans
Fannie Mae, Freddie Mac, USDA, and HUD no longer allow deferred student loans to be exempted from debt-to-income calculations. VA loans exempt deferred student loans that have been deferred for 12 or more months from the closing date
If student loans are not deferred, VA will take 5% of the outstanding student loan balance and divide that figure by 12 months, and that will be the monthly student loan payment used for DTI Calculations.
If the IBR is reported on the credit reports, conventional, FHA, and USDA loans will take IBR (Income Based Repayment) as the monthly debt. Conventional lenders will count 0.50% of the student loan balance as the monthly payment if the IBR payment is not reflected on the credit report or borrowers cannot get a fully amortized monthly payment over an extended term in writing.
Get Pre-Approved For Mortgage For Recent College Graduates
To get approved for a mortgage for recent college graduates, contact us today. College graduates with recent job offer letters need to qualify for a mortgage with a lender with no mortgage overlays on government and conventional loans. Please contact us at Gustan Cho Associates. Homebuyers who are about to graduate and need pre-approved for a mortgage loan and see the maximum amount they qualify for, click this link to Get Pre-Approved or call us at 800-900-8569. Or text us for a faster response. Or email us at gcho@gustancho.com.
This BLOG on mortgage for college graduates was UPDATED On May 7th, 2023
