Can Graduate Students Obtain a Mortgage?

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.

My Money Blog – How Much of a Mortgage Loan Can I Afford?

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.

Conclusion
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. On the other hand, If you decide you are not ready for a mortgage, take a glance at these apartments for rent in Winnipeg.

Keep on learning!

Jacob

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Comments

  1. Hey! So what was the outcome of your loan? Did you have to get a cosigner? I told this to my mortgage guy and he said I would be fine. My university is going to supply a letter of my stipend for this current year and next year. Since its a W2 now and no longer a 1099-misc, it might fly by just fine. But I am lining my dad/mother/brother to step in as cosigners if it is needed. I have actually found a house and have already put a bid in!

    • Awesome Nathan! I hope it works out for you. I didn't want to bother with a cosigner, so I ended up not getting the loan. They said they wouldn't budge on needing to see proof of guaranteed employment for 2 years. It's still sort of a sore point, but life moves on right!? haha
      My recent post Saving Money on Your Health Insurance

    • Greetings, Nathan. I am currently in this situation. I am working with Chase in decreasing my debt and if the Lord says so, I will purchase a condo/town house early next year. I am currently in grad school and will be entering a doctoral program in 2014. Nathan, would you kindly share who your lender is, if Chase does not work out for me? Please send an email to tselaneg@alumni.uci.edu. Thank YOU!

  2. How’d it turn out? Did they give you the loan? Do you or anyone else know if a grad student with little undergrad debt can get a small loan on a cheap house?

  3. I got the same reasoning from underwriting for pre-approval through Wells Fargo Home Mortgage. It appears that graduate students can only do FHA with a non-occupant cosigner. Though, I’m going to try my university’s credit union; they may have more experience with granting loans to graduate students based on stipend. The ridiculous part of this is that I have no debt, excellent credit, and well over the recommended 20% down payment.

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