Qualifying for a Mortgage As a B-School Student

Question

Don't have time to add much to this now, but is anyone working on this? I've been looking around, and it's not going to be much fun. It's unlikely that my student loans will count as income, some lenders will count my current loans toward my Debt to Income Ratio (DIR), and ndhlp doesn't have a job lined up yet, so it's not like we can bank on his big, fat post-doc salary. (Just for your own enjoyment, we're hoping he'll make $30k to $40k.)

GMATT73 · Answer

I guess that puts things in to perspective. Even if we put 30% down are we still SOL without any income?

What about cosigners? I guess that option no longer applies for mortgages, right?

johnnyx9 · Answer

Well I guess if you think about it from the bank's perspective, they're thinking: "This person has no income, they just took out massive loans. This could be a really risky person to give another $300K loan to."

Why shouldn't we think the same way as the banks? I know we all have our magical tickets to MBA la la land where we're going to be zillionaires in pinstripe suits just a few years after school, but if we think rationally about it, maybe taking a $300K loan (or whatever mortgage we need) isn't the best idea considering we have no income and massive school loans. We're broke right now, no matter what our potential may be.

Haven't banks been incredibly irresonsible in dishing out loans the last ten years or so? Given how incredibly easy it is for most people to get a mortgage, if we're being told by banks that we're risky, well.....aren't they probably right?

swgotz · Answer

Hey Amy, what about a stated income, no verification loan? Sure you'll pay a little more in interest but it would get you into a place.

GMATT73 · Answer

Link please.

squali83 · Answer

This is a loan that any lender offers. It is based on your credit score. You will pay a little more but it is probably the only way we will be able to obtain a mortgage.

GMATT73 · Answer

Actually, I was eyeballing a $140K shack with payment terms that would be virtually equal to the rental market price. I don't even care if I pay down zero in principal, it's all about pumping up an idle six year credit record for that descent pad after grad. You dialed into my frequency now Johnny?

johnnyx9 · Answer

GMATT73 - Yep, I'm dialed in now, makes sense.

SWGOTZ- Who is Amy?

rhyme · Answer

Here's the way to do this.....

Get the letter of credit BEFORE you go to Graduate School while you are still employed. You'll be able to lock in a 30, 60 or 90 day lock - the longer out the more you loose out - and as long as you clsoe on a place within those 90 days you are all set. 

Otherwise you'd have to go to SISA, Stated Income, Stated Asset - basically, no verification of your income or employment. It's typically for self employed individuals, but you can get loans this way. 

The best option however is to just get the mortgage qualifiaction while you are still working, THEN quit. Of course you cant tell the mortgage broker your true plans.

piper41955 · Answer

The underwriter can pull the loan at any time until it is signed regardless of whether or not you locked in the price, close the loan before you quit your job. Above all, don't underestimate the maintenance cost of rental property; you may put yourself into a rather tough financial situation without an income if something expensive breaks.

rhyme · Answer

Yea ok thats true - close the loan before you quit your job... As for your other point, I assume meant owning property, not rental...

died4me · Answer

I am actually considering buying a house instead of renting

During the BDW, a YS guy said that his relo package was 70K higher because he has a decent size house. He also said that his house's value went up roughly 5% annually. The outlook for the next 2 yrs are actually pretty good unike the most part of US.

I know that there is a risk that i might not get any relo package. But for various personal reasons, I am gonna try everything I can do to buy a house down in Chapel Hill/Morrisville/Cary area. Durham area sucks!!!

I will have to close a loan before I quit my job. I can actually continue to work after I move down in NC since I am virtual anyway.

piper41955 · Answer

That sounds like a plan, bear in mind that underwriters may ask for some substantiation from your employer that you are able to work from the area. It happened to me once when I bought a house in Phoenix owner occupied while still working in Cali. 100% financing is also harder to get these days thanks to the subprime market imploding, so be prepared to walk in with a down payment.

died4me · Answer

Thanks to the recent boom, I have some equity to put more than 20% down for a house down in NC. ( 30% cheaper than the most of NE markets)

aaudetat · Answer

died4me, I am in your position, except that we want to buy in Durham. It's all about finding the right house on the right street.

Rhyme - the problem with your plan, as alluded to by others, is that if you're relocating, it ain't gonna work. Most mortgages require owner occupancy. if you're approved based on your work in Boston, but are trying to buy in Chicago, the lenders are going to figure it out. 

Here's our situation: 

1. Stellar credit - 800 for me, close to that for ndhlp

2. >20% downpayment.

3. 5 years stable work for both of us

4. I'm about to lose all my income

5. ndhlp will certainly find a new job, but hasn't gotten there yet.

6. Almost no debt: only our current mortgage and fairly minimal student loans. 

So from what I can see, we have three options:

Stated Income - "er, yes, we make $50k a year" and there ya go. These loans are somewhat more expensive, but not tons. And given our downpayment and credit scores, we should be solid. Though I love how I've been working in economic development, getting people away from predatory lending, and now I'm signing up for sub-prime myself!

Co-Signer - Some lenders are all for it, some aren't. I talked to one lender that requires ALL parties to live in the house, which means a cosigner would only work if that person was going to live with us. At my CU, cosigners can live anywhere, as long as they can deliver the goods. 

Rent First - We could rent for a while, allow ndhlp time to get down there, get a job, and then qualify on his income. Oh, that makes me sad. That'd be like 1950.

I have to say, all of this kind of kills me. I'm incredibly proud of the fact that completely on our own steam we managed to buy a first house with no help from the parents. And now, 3 years later with a steady boost in equity and credit standing, I have to go sub-prime, rent, or get one of the parents on board. Good god.

swgotz · Answer

I've purchased two houses in states other than where I work and in both cases the mortgage company didn't say anything about the distance. Though I guess it's really dependent on the mortgage company.

died4me · Answer

Yeah, I hate to be in a position when I am under the pressure and about to be taken advantage due to lack of other options.

But, even with a higher APR, it does make more sense to buy than to rent financially.

aaudetat, I said Durham area sucks because its housing value went up only 5% compare to 11% in Chapel Hill.

Who knows, I might end up finding a place in Durham, if I cannot find an affordable house in other areas. It would be very funny, if we become a neighbor. :lol:

pelihu · Answer

I'm actually feeling kind of relieved that I won't have a mortgage to worry about next year. I'll probably pay less for rent than I currently pay for property tax alone (about $8k per year).

Do you guys really think that there will be much financial advantage to owning for less than 2 years? After you factor in broker fees on both the buy and the sell, property tax (which you wouldn't pay as a renter) and the fact that you won't have much income over the next 2 years to offset with the mortgage deduction, I don't find it very compelling financially to purchase a place; and considering how much less expensive Charlottesville is than around here I wouldn't even have to borrow.

I'm going to avoid the hassle of buying, and the even greater headache of selling and just rent for 2 years I think.

died4me · Answer

your avatar has some magical power to it.
the more I look at it, the more I think about "how about Darden over Fuqua???" hahaha

a liveable apartment w/ 2 beds down in Durham is around 900 a month.
If I buy a 180k house w/ 20% down pay, my mortgage will be lower than 900.

Con: Property Tax. Commisions on brokers. hasle of finding a place and selling it. My head already hurts!!!

Pro: I can write off the mortgage interest for the half year (2009) assuming that I will start working right after MBA.
Durhamd surrounding area is growing due to the RTP, and roughly 5% increase on house value can be expected. Generally, employers will pay $$$ in relo package if you own a house.
More importantly, I need privacy and space for my family.

with everything considered, i think it will come out to be roughly even.
but I am willing to go through this to have more space for my family.
Since I won't be around much to spend time with them, this is the least I can do for them. I hope they make good friends around the area so that they won't notice my absence too much. :lol:

aaudetat · Answer

I've run projections both ways, and even if I assume a pretty bad case (no growth in the value and a major repair of some kind), we come out only a few thousand dollars behind. If you look at a more reasonable scenario (5% growth, etc), then we'll come out well ahead. Considering our downpayment, it may be quite a bit cheaper to buy. I've got my eye on one place - we're talking about a total payment of $625 per month. And we might actually stay - who knows? it's a great area for both of us, career-wise. We both hate moving, and ndhlp doesn't like the cold.

Qualifying for a Mortgage As a B-School Student

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