As many of you all know, I am currently saving up money for a down payment and attempting to obtain a home mortgage loan in preparation for closing on the purchase of a condo/townhouse/house this fall when I begin graduate school.
Why do I want to buy a house/condo/townhouse instead of renting?
Since I will be in graduate school for 4-5 years, I would like to be building up some kind of equity during this time period, instead of just wasting money with rent payments. Additionally, I want to try to follow the rule of thumb that it is better to buy your housing if you plan to be in the property for 3-5 years or longer.
Note: in a future post, I am planning to create a rent vs. buy calculator spreadsheet for everyone to use.
From a previous post (see link below), I was able to calculate that the loan amount I can afford is ~$95,000.
While I am certain that with my income right now, I can get approved for a home loan, I was not really sure if I would be able to gain approval for a home loan this fall, given that my income will be drastically less ($23,000 per year) during graduate school.
However, approximately 1 month ago, I went ahead and applied for pre-approval of a home mortgage loan, using a mortgage broker that was recommended by both the real estate agent and a friend who is also in graduate school.
I filled out all of the forms, provided tax statements, proof of income, proof of 2 years of employment, total net worth calculations, and account statements from where my various investment instruments are located.
Everything seemed to be going well, and the mortgage broker calculated that he should attempt to pre-approve me for a $125,000 FHA home loan (3.5% down payment minimum). However, when my application was submitted, the mortgage underwriter could not approve it due to the following reasons:
- The letter of employment from the university in which I will be attending graduate school this fall did not show a guarantee of employment for 3 years. Personally, I think this is a little ridiculous because even normal jobs are never guaranteed (if you don’t perform well).
- The letter did not mention if I would be liable for any tuition payments in my schooling.
Interestingly enough, it was never mentioned that my application was denied due to the normal reasons you hear about, such as insufficient credit or lack of income or liquidity.
He said that I would need a non-occupant to cosign the mortgage loan with me in order to get approved.
While it may be possible for a graduate student to obtain a home mortgage loan as the sole borrower, I definitely was not able to, given the income I will be receiving. It really seemed to throw off the mortgage lenders that I was going to be a paid student, as I am guessing they don’t receive too many of those applications.
In order to qualify for a home mortgage, you will most likely have to have a co-signer/co-borrower, even with great credit and a sizable net worth.
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