Getting Approved For a Mortgage After College

This guide covers getting approved for a mortgage after college with no work experience and high student loan debt. One of the mandatory requirements to qualify for a residential home loan is that the mortgage loan applicant has a two-year work history. The 2-year work history requirement applies to all loan programs. Whether buyers want to qualify for an FHA, VA, USDA, Conventional, Jumbo, and non-QM loans.  Alex Carlucci, a senior loan officer and an associate contributing editor at GCA Forums Mortgage Group says the following about getting a mortgage after college without work experience:

All mortgage lenders want to see a 2-year work history. Gaps in employment are fine. However, a 2-year work history is required. The 2-year mandatory work history requirement has become an issue for immigrants who came from another country.

They have great-paying jobs but do not have the 2-year employment history that is required. The two year work experience is a concern for many recent college graduates getting approved for a mortgage after college with no work history. In this guide, we will cover getting approved for a mortgage after college without work experience and high student loan debt.

Getting Approved For a Mortgage After College Without Work Experience

Many folks attend college and graduate and professional school full time. Many do not work and study full time. After graduating, they often get great offer letters of employment. However, they do not have a two-year work history. This is fine because mortgage guidelines state that full-time students can use their school transcripts in lieu of employment history when qualifying for mortgage loans.

Full-time Schooling is Viewed The Same as Full-Time Work Experience By Lenders

Many students spend many years as full-time students from the following types of schools:

• business schools
• law school
• dentistry schools
• medical schools
• Many do not have the mandatory 2-year employment history when they graduate
• Many have six-figure salaries and can easily afford a home as well as the expenses that go along with homeownership
• Do college graduates have to wait two years for a home purchase after college?
• The answer is no
• Graduates of technical schools, junior colleges, 4-year colleges, graduate schools, and professional schools are exempt from the two-year mandatory employment history requirement

This holds as long as they can provide their college transcripts.

Case Scenario on Getting Approved For a Mortgage After College

In this paragraph, we will cover getting approved for a mortgage after college without work experience. For example, here is a case scenario: If a student just graduated from high school. Then after high school, the student went to a 4-year college to study pre-law. After graduation from college with a Bachelor’s of Arts degree went straight to business school for the next two years. The student got his Master of Business Administration degree. After the MBA went to law school for the next three years and graduated with a J.D. degree, a law degree. The student has not worked a day in his life. This student can qualify for a mortgage loan even though he does not have a two-year employment history as long as he lands a full-time job. This person can close on his mortgage loan after providing 30 days paycheck stubs to the lender.

Getting a Mortgage After College With an Offer Letter of Employment

To qualify for a mortgage loan, college graduates need to secure full-time employment from an employer as an hourly employee or salaried employee. Commission employment does not count for recent college graduates seeking home purchases after college. If graduate land commission job such as a real estate agent or car salesman, they need a history of 2 years full-time employment history.
Part-time employment does not count either. Jobs, where the employer pays cash, do not count either.
However, those who get an hourly or salaried income and their status are full-time, will be able to qualify.
They can apply for a loan and get approved. However, they cannot close until they have received 30 days of paycheck stubs from their employer and submitted them to the mortgage underwriter.

Down Payment Requirements

Except for VA Loans and USDA Loans, every homebuyer needs to put a down payment on a home purchase. The minimum down payment required for a conventional loan is a 3% down payment of the purchase price. The minimum down payment for an FHA-insured mortgage loan is a 3.5% down payment. Many college graduates do not have down payments of their own. The great news is that the down payment can be gifted from parents or other family members. Donors of gift funds need to sign the Gift Funds Form provided by the lender. A gift letter will state that the gift is not a loan and does not need to be paid back. 30 days of bank statements by the donor of gift needs to be provided showing gift funds seasoned and being withdrawn to pay the home buyer.

Credit Requirements Getting Approved For a Mortgage After College

Many college graduates do not have a credit or limited credit since they were students for the past several years. Home Buyers can still qualify for a mortgage loan with no credit. Lenders can use non-traditional credit in lieu of traditional credit. Non-traditional credit is creditors that do not report to the credit bureaus.

Getting Approved For a Mortgage After College With Nontraditional Credit Tradelines

Examples of nontraditional credit include utility bills, cell phone bills, insurance bills, cable television bills. Other creditors that are paid timely for the past 12 months do not report it on the three credit reporting agencies.

How Do Student Loans Affect Home Purchase After College?

Depending on the mortgage loan program, student loans may affect the calculations of debt to income ratios. FHA Guidelines on Student Loans will not honor IBR Payments. VA Loans allows borrower’s student loans have been deferred for at least 12 months, the student loan monthly payments can be exempted from calculating debt to income ratios.

Department Of Veteran Affairs guidelines on student loans are as follows:

• Take 5% of the outstanding student loan balance
• Take that figure and divide it by 12 months
• That figure is the amount used as a monthly hypothetical debt

Fannie Mae Mortgage Guidelines on Getting a Mortgage After College With High Student Loans

Conventional Guidelines on deferred student loans state that student loan payments need to be counted in qualifying borrower’s debt to income ratios. This is the case even though the student loans have been deferred for more than 12 months. Income-Based Repayment Plans (IBR) that allow on the credit report are allowed on conventional loans. HUD requires 0.50% of the student loan balance to be counted as a hypothetical debt.

Or borrowers can do the following:

• Contact Student Loan Provider
• Tell them applying for a mortgage
• Tell them that the lender requires a fully amortized monthly payment over an extended term
• That term is normally 25 years but some student loan providers will amortize it for 30 years
• Need the fully amortized monthly payment over an extended-term in writing
• If the fully amortized payments turn out lower than 0.50% of the outstanding balance, then you can use this amount.
• This figure can be used in lieu of 0.50% of the outstanding student loan balance

If the student loan provider does not give you the proposed payment, 1% of the student loan balance with being used to calculate monthly future student loan payment: USDA mortgage guidelines on student loans are the same as HUD Guidelines. Home Buyers planning on graduating from a technical school, junior college, college, graduate school, or professional school and have an offer of employment and are intending on purchasing a home after graduation, contact us at GCA Forums Mortgage Group at 800-900-8569 or text us for a faster response. Or email me at gcho@gustancho.com so I can get you a solid pre-approval. Text us for a faster response.

FAQ on Getting Approved For a Mortgage After College Without Work Experience and High Student Loan Balance

These will be relevant for an individual with no prior experience and who has many outstanding student loans.

Mortgage After College: Issue Raised

Are There Times That Could Be Considered Suitable For A New Graduate In Obtaining A Mortgage?

Of course. That is likely not an option as she has predominantly unpaid loans and minimal work experience. Several situations can be triggered when considering whether modifications made to any part of a borrower’s financial footprint make it more likely than not for him to qualify for a loan.

Could High Loan Debts Affect The Odds Of Maintaining A Low Ratio Of Debt To Income While Targeting The Mortgage?

The defense of a higher student loan-to-income ratio is the strongest shield since it is expected to remain high, especially for borrowers like borrowers. ” You have canceled every application that was made on my behalf.” This means a DTI of 50 or more. That means four out of every ten households in America today have a debt-to-income ratio of over 40%. Moreover, over 14% of those households have a DTI over 50.

What Are The Other Services I Could Possibly Get While Targeting The Mortgage?

To boost your chances, Build a reliable income by Becoming employed or getting a job in a more stable industry. Strengthening your credit history is equally vital: Make payments on time and do not allow the amounts on credit cards to accumulate.

Think About Making a Larger Payment

The loan can be smaller, and a greater payment shows you are responsible.

What About My Student Loans? Will They Be Incorporated Into the DTI Ratio?

Lenders will factor your monthly student loan payments into your DTI ratio. Understanding how this ratio affects your mortgage eligibility is essential.

Can I Have a Co-Borrower Assist Me When Filing a Mortgage Application?

Naturally, a co-signer with a good credit history and regular earnings will augment your chances of getting approval. Your financial history as a borrower and that of the co-signer will be considered in the application, which may balance any weaknesses.

What Options Do Graduate Students Have Getting Approved For a Mortgage After College?

A few types of loans may be available to fresh graduates, some with lower requirements: FHA Loans: They tend to have a lower DTI and higher credit score ratio. Conventional Loans: Standby loans may be offered if your credit score and income are adequate. VA Loans: VA loans offer better terms for veterans who qualify.

How Important is My Credit Report in Getting Approved For a Mortgage After College?

Your report is a major determinant in the mortgage approval process. The better your score, the more likely your loan terms will be favorable, but with a lower score, you may have limited options.

Should I Wait Getting Approved For a Mortgage After College Until I Have More Work Experience?

Although having more working experience may strengthen the application, it is not always a requirement. If you are employed on a stable basis and manage your finances well, then applying earlier might help, especially if there is a suitable property to purchase.

What if I Have Never Used Credit and I Need a Credit History?

If you have no credit history, try to build one, such as: … that involves you using a debit card for a rental transaction… purchasing under a family member’s debit card… paying up any outstanding debt, such as student debt, timely.

Will My Income Be a Potential Source for the Application Getting Approved For a Mortgage After College?

Some lenders may accept a job offer or a letter of employment that contains particulars of the job, like the position, salary, and duration, especially for those who are about to graduate. This could also prove the amount of money you would earn in the future.

With limited job experience and a lot of student loan debt, obtaining mortgage approval after college can take time and effort. It is, however, possible. If you can find stable employment, co-signers, and secure loans, it might help you out. But more importantly, always talk to a mortgage professional to develop more personalized options for your situation.

This guide on getting approved for a mortgage after college without work experience was updated on November 28th, 2024.