Can I get a mortgage? Is it possible to be approved for a mortgage after college? Can I own my own place before I’ve saved up a lot of money?
When I wrote about investment options that are better than investing in the stock market, I knew that I would get feedback from the more ambitious readers. I received two emails on the topic. Then earlier on today I ended up meeting up with my friend from school who’s working as an Advisor at a Credit Union now. On top of him spilling his coffee and me making a scene out of it, we got into talking about what he looks at when someone comes in to apply for their first home mortgage.
Before we get started I wanted to mention that I’m not here to tell you if it’s better to buy or rent because I’m here to cover the process of applying for a mortgage.
Can I get a mortgage? Let’s look at what you need to take off before you even apply for a mortgage.
Your credit score.
Before anyone even considers loaning you any money at all, they’re going to look at your credit score. This is simply a tangible number that gives a snapshot of your history of handling credit. You can argue all that you want with it, but as a young person applying for a mortgage you’re going to have to get your credit score up there before you ask for a penny.
If you don’t know what’s a good credit score, I suggest that you check out my previous piece on the topic. You can check out your credit score from all three credit bureaus with Equifax right now. You can also get your free Transunion credit score from Credit Karma as well.
Your income and job security.
How stable is your job? The loaner won’t want to loan money to someone with an unstable job because then you won’t be able to pay your mortgage payments and you might consider walking away from your mortgage (as seen with the recent economic issues). This makes perfect sense because why would you loan money to someone that might not even have a job in six months?
Another factor with applying for your first mortgage is your income. There’s a ratio known as TDS (which I’ll explain in detail in another post) where the loaner will look at your income and compare it to your total expenses. I’m not going to bore you with the details. Long story short is that you won’t be approved for a mortgage if your income isn’t substantially higher than your expenses.
Just so you know, if you’re a young entrepreneur you’re going to have a pretty challenging time trying to prove that your income is stable.
Your savings.
How much money do you have saved up? How much of your savings will go towards your home down payment? The company where you apply for your home mortgage will want to know that you have money saved in the bank in case you lose your job or your business tanks. They simply want to know that you’re going to be able to cover your mortgage payments in the worst case scenario.
Your residence stability.
My friend mentioned to me that they take into account your residence stability in the sense of how often you’ve moved around in the last few years. This isn’t a huge factor in applying for a mortgage if your credit score and savings are up there. When there are issues with your credit and how much money you’re putting down, then the loaner will want to see how stable you’ve been with where you live. They want to be sure that you’re going to actually want to live in the home that you spend so much money on.
It’s time for you to answer the question. Is it possible to get a mortgage after college? In certain situations you can get a mortgage a few years after college. If your finances are not where you want them to be just yet, then there’s no shame in waiting a little longer before you buy your own place.
I heard it’s tough for recent college grads to get a home but maybe things are different. I know a strong credit score leads to getting better deals on credit but I would imagine they want to see that you have at least 20% to put down. That’s tough for most RCGs. It’s expensive, too, once you factor in insurance, taxes, up-keep, etc.