Banks scared of loaning to college grads with student loan debt?

Question

Hello BP Community!

I am graduating from college this Spring and am looking to get into a market (either Minneapolis, MN or Des Moines, IA area) to start acquiring multi-family properties to BRRR. I have enough capital saved up for a down payment but will look to get some type of loan (either FHA or Conventional) and will be looking to work with local banks to secure that. My question for you BP Community is are banks scared of giving recent college grads with student debt hanging over their head loans for mortgages? The only full time work experience I have is through internships so I don't have a steady income that can support a mortgage (worst-case scenario) but I do have a high credit score that I have built up over my college career. Let me know your thoughts. Appreciate the future input!

Brett

Tim Swierczek · Answer

@Brett Staniforth   There was quite a bit of good advice so I will recap from a lenders perspective.  I think everyone or nearly everyone recommended that you get a job.  It was recommended that it's in your chosen field and while there is some weight put on that it's most important that your new job is both full time and permanent.  Since it's a new job with no history you will only be able to count salary or full-time hourly pay only.  You will not get any credit for overtime pay, commission, or bonuses for the first 2 years at your employer so I would not recommend starting at a job where the majority of the pay comes from any of these sources.As for job history, Johnna mentioned 3 years work experience.  This is not required to get a loan.  Without getting into specifics with Johanna I cannot be sure why she needed it but I would suspect it had to do with the nature of her income which would normally need 2 years but sometimes the first year of commission pay or bonus pay does not look good and so a 3rd year is needed.  Either way, you will be asked to prove your recent graduation and then you will be able to be approved with either one month of paystubs on an FHA loan or even before you start working on conventional loans with proper documentation from your new employer.

Please note the following paragraph is not lender dependant, they are the national guidelines so. While there are differences between lenders somethings are not allowed to be made easier, but can be made more restrictive which are called lender overlays. Below are the raw as good as it gets guidelines.Johnna also mentioned income-based student loans or IBR loans.  IBR loans are treated differently by each loan type and differently between Fannie Mae & Freddie Mac guidelines.   FHA will treat them the most strict as they treat all student loans regardless of your payment as the greater of 1% of your balance or the full payment whichever is higher unless the lender can document the fully amortizing payment is less than 1%.  Freddie Mac allows the lender to use the amount on the credit report provided that amount is greater than zero if it's zero then the lender must use .5% of the current balance.  This means if they are deferred or an IBR payment of Zero you must use  .5% of the current balance as the payment.  Fannie Mae allows the lender to use the actual payment on the loan unless the loan is deferred in which case Fannie requires the lender uses 1% of the current balance similar to FHA.To make things more complex, FHA has the worst student loan policies but the lowest down payment on multifamily.  Freddie has the second toughest student loan criteria but has a 5% down multifamily option where Fannie requires at least 15% down on a duplex and more on 3-4 plex even if you live in it.The bottom line is to find a good job in an area you would like to live for a while.  Once you do that your options will become more clear.  Please reach out if you would like meeto for coffe & talk investing.

Armin Nazarinia · Answer

@Brett Staniforth- As said above DTI is the important part. If you don't have income yet then they won't give you a loan. I got my first house with all of my student loans and the only part I had to get around was the Debt to Income. If you're just graduating get a job in the area of your degree that'll overcome the lack of long term employment.

Example: Accounting major, get a job in accounting so it shows you schooling as your "employment history" in a way. You can calculate your Debt to income using this calculator to get an idea of where you stand. Best of luck!

John Woodrich · Answer

@Brett Staniforth as the others have mentioned your loans affect your DTI.  If you have enough income it won't matter.  I would start talking to a mortgage broker soon to see if you can exclude them while they are in the deferment stage.  You will need income to support a mortgage payment so if you don't have any income your first step will be getting income to add to the income side of the calc.  @Tim Swierczek would be a good connection for you.

Anthony Wick · Answer

I don't believe the student loans will hold you up. It's a simple debt to income ratio thing. But no steady employment? Not sure you can get any mortgage approved without income.

Nick Flint · Answer

I wouldn't say they're "scared", but they will look at your debt to income ratio. I'm a recent grad and just went to my local credit union for approval, and they said they'll look at my last paystub to determine income. So graduate, get a job that you can have a paystub for, and use that for your approval. Do you have any money set aside for a down payment? Because they will play a large part in what you get approved for/how much they offer.

Caleb Heimsoth · Answer

@Brett Staniforth. I recommend paying off student loans before investing in real estate

Brett Staniforth · Answer

@Dominic Flint Yes I do! If I go the FHA route I will definitely have enough money for a down payment at least.

Banks scared of loaning to college grads with student loan debt?

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