I thought it was only small business that gets screwed when you're trying to get a mortgage (see my rants here and here). But it's even worse than that!
My friend and her husband decided they were going to leave the rat race after she got laid off. So they both quit their jobs, sold all their stuff, and are going to live on practically nothing as grad students and get their PhDs for five years. They're trying to buy a very modest house in a small college town before school starts.
They saved every penny. They have over 50% down on a house that cost less than $150K. They had a couple choices picked out.
They also had letters from the university that their graduate stipend and health insurance was guaranteed for five years. That's a heck of a lot more than I got from my W2 job!!!
DENIED.
Graduate stipends don't count as income. If she hadn't been so hysterical, I might have laughed when she called. Absurd. She understands my frustration now!
Surely, there's some credit union that would lend to 50% down, guaranteed income grad students. A quick search found the university credit union. I hope they at least can point her in the right direction.
Like us, they had enough credit on their freaking credit cards to buy this house, but they couldn't get a mortgage. I understand that loans were too lax in the past, and the liar loans and so on. But 50% down! Guaranteed income! Ridiculous.
Sunday, June 21, 2009
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Maybe they could try and offer to buy it on land-contract, if the seller would be willing. Since your friends have such a high downpayment, the sellers would be able to collect & keep a lot of "interest" from your friends' monthly payments, the up-front costs would be minimal (appraisal, title-work, bank fees, funding escrow accounts, etc. are all virtually eliminated), and they would still be able to take (I think) most of the interest tax deductions for it at the end of the year.
So, in other words, in the whole of the United States, not one single self-employed person owns a home?
Find another mortgage broker.
That is some effing crazy shiz-nit!!!
With 50% DOWN???
Damn. I'm feeling less than stellar about wanting to be a freelancer in the States now. Whatever happened to entrepreneurship? :P
I don't find this ridiculous at all. Guaranteed income for five years and then what? A mortgage company is looking for them to have income beyond that since the house won't be paid for in five years. If your friends were smart, they'd park the money they have in CD's and just rent while in grad school.
Maybe they could just rent a decent place. What's so bad about that? I'm not sure why there is the notion that everyone should be a homeowner. They seem like classic candidates for renting. They could do other things with their money than plunge it into a house.
I'm biased but unless it's a professional graduate program (law, med, dentistry), I don't see a person who goes to graduate school as more or less credit-worthy than a regular undergraduate student. I agree with dave ramsey when he says that the world is full of educated derelicts.
Tenure is largely becoming a thing of the past. Teaching is a limited career anyways, unless the person is also there for a specific project - ie, one that is driven by and for industry.
Having both of them simultaneously enter grad school is extremely tax-inefficient.
Ah well. As someone who gave up dreams of a PhD and teaching in my own preferred field, perhaps I am just jealous.
I find this a little hard to believe because I just bought a condo using my graduate stipend as my only income.
that is a little frustrating!
@Saving Diva: They got rejected from their big box bank. I'm sure they'll be able to get a loan from some credit union. I'm sure of that. It's just a pretty stupid underwriting guideline for banks.
Dog said: They got rejected from their big box bank. It's just a pretty stupid underwriting guideline for banks.
Since big box banks have lost billions and brought the financial system to its knees by giving home mortgages to people with no chance of ever being able to pay them back, all I can say is hallelujah that banks are getting back to abiding by underwriting guidelines to keep the financial system (and all of us) from going through all this pain again.
@ Barb1954
I think the problem is that these "big box" banks are going from one extreme to the other. Accepting anyone with no real proof of income to denying people that don't have W2'S - It's the same problem, they are using blanket rules. I think the rules should be guidelines and each case should be evaluated individiually. Just because I can produce my last to paycheck stubs doesn't mean I'm not going to get fired next week. I think the banks are being lazy and need to put some thinking into it.
Interesting. I wonder why they don't count it. I also think it is not counted as "earned income" for Roth IRAs and Social Security, but I've discovered grad students are paid in a variety of ways, some of them count, some of them don't.
Have they been working with a real estate agent? I am a graduate student who does not get W2 (I had a similar letter from my University about my guaranteed stipend) and my real estate agent had a smaller mortgage company that she worked with on a regular basis, and they had no problem giving me a mortgage this summer. I did have trouble when I shopped around at the bigger banks. Hope your friends have some good luck soon!
I have bought twice with a graduate student income. Typically after a stipend there is a job or a post-doc lined up with more income.
Was your friend ever able to remedy this situation? We are having the same problem, with the difference that we are postdocs rather than grad students. My partner's funding comes directly from the NIH (no W2) and mine comes from an NIH R01 grant (W2). Same salary, same stability, but we are unable to use his income. Was a smaller credit union better equipped to deal with this?
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