How the New Mortgage Rules May Affect New Graduates

Have you recently graduated from college?

Are you excited about purchasing your first home?

Buying your first home is an amazing moment in life. It is a moment that you will remember forever. However, new mortgage rules may mean that recent college graduates will have a harder time getting approved for a mortgage.

New graduates are facing a lot when they step off campus and onto the streets. While the economy is coming back, there is still too much unemployment. In addition, the rising cost of college tuition means that many new graduates will be saddled with sizable student loans.

Preventing Another Housing Crisis

In a comprehensive effort to prevent another housing crisis, the government has created a set of standards, the Qualified Mortgage Standards Under the Truth in Lending Act. These new standards must be met if the lenders want the mortgages to be protected from lawsuits in the event borrowers are unable to pay. They were created to ensure that lenders only issue loans to those who can afford to repay them.

Banks all across the United States are already starting to implement these new mortgage rules. So, what is changing and why would it affect recent college grads?

In our article, What Determines If You Qualify for a Mortgage, we reported about 8 factors that will determine if you qualify for a mortgage. There are a few factors that directly impact those who have recently graduated from college.

4 Factors That Directly Impact Recent College Graduates

  1. Employment Status
    The first factor that will directly affect new college graduates when applying for a home mortgage is their employment status. Even if a new grad gets hired right away, banks are looking to lend money to those who have been employed for at least 2 years.
     
  2. Income
    Another piece that banks will want to see is 2 years of income. They will ask recent graduates to show 2 years worth of W2s.
     
  3. Student Loans
    Many college students make it to graduation because of student loans. These days, student loans can be used to cover the cost of books, cars, rent and tuition. While in school, student loans can feel like a life saver, but when you are out of school these types of loans can make banks feel pretty nervous about lending money especially if they have amounted to a sizable sum of money.
     
  4. Debt-to-Income Ratio
    Lenders will be looking at the debt-to-income ratio. The magic number here is 43%. Your monthly debt (student loans, car payments, credit cards, etc.) cannot exceed 43% of your income.

What Should a College Graduate Do?

If you have recently graduated and are looking to purchase your first home, this news may be frustrating. There are few things you can do.

  • If you are still in school, get a part time job with a company you will want to work for after you graduate. When you graduate, you will be able to report that you have been working there for a year or two. You may also minimize unemployment time after graduation if that company hires you full time after graduation.
  • Pay off your credit cards and other loans as soon as possible. Get your debt lower so you can purchase more house for your money.

Summary

As a recent college graduate, there are factors that will come into play when you apply for a home mortgage. There are practical tips that you can implement to help increase your chances of being approved for a loan when you are ready to purchase your first home.

When you are ready, you may like to consider looking at the family-friendly cities of Northville and Novi, Michigan. We would be honored to help you find that perfect home. Please call our office at:

248-348-7200