Mortgage Advice for Lawyers, Doctors, and Young Professionals with High Student Debt

In today's mortgage world, doctors, lawyers, and other professionals can find that getting a mortgage after graduation can be very difficult if they have high student debt and lack significant job history. We ask the experts for some tips on what these graduates can do to improve their chances of being approved for a mortgage.

Many doctors, lawyers, and other graduate degreed professionals finish school in their late twenties to early thirties with a good, steady paycheck and a desire to upgrade their living conditions after many years on a student budget. Part of the plan often includes purchasing a home. Most young professionals assume that with their high salaries and great future job prospects, they should have no trouble receiving a mortgage. In today's mortgage world though, doctors, lawyers, and other professionals can find that buying a home after graduation can be very difficult if they have high student debt and lack significant job history.

While doctors, lawyers, and other professionals often graduate into jobs with high salaries, have great credit histories, and may even have money for a down payment, high student debt is often a huge obstacle to securing a mortgage.  When determining whether to give a loan, a key metric used by lenders is the debt to income ratio, calculating by taking all of a borrowers monthly debt payments (student loan, credit card, auto loan, etc.) and dividing it by their gross income. Thus, a doctor with $3,000 in debt payments and with a gross salary of $10,000 would have a debt to income ratio of 30%. In general, borrowers with ratios over 45% will not quality for a mortgage.  Gloria Shulman, the founder of Centek Capital Group in Beverly Hills stated that "even if deferred, student loan debt is a huge issue for young borrowers... medical or other graduate school debt can be a killer if you don't go into buying property with a debt management plan." Doctors and lawyers because of the number of years of graduate school required, often have the highest amount of debt.

The second reason young doctors and lawyers may find it difficult to get a mortgage is that many mortgage lenders require two years of stable work history before providing a mortgage. A new graduate doesn't have the work history required by many lenders.

But difficult doesn't mean impossible. Here are some tips provided by lending experts from around the country:

Get a Co-Signer

Ms. Shulman recently helped a young neurosurgeon find a loan product after multiple bank denials by working a deal where his parents were co-signers in name only. Having parents server as co-signers places risk on your parents and is often not advised by financial planners, but if you have a great relationship with your parents, and are confident in your future earnings, if might be a sensible step to consider.

Buy a Starter Home

Don't have your sight set on the McMansion down the street, start with more modest aspirations. Look to buy a home with a mortgage of less than $417,000 (a conforming mortgage). Roy Sperr from Equity Source Mortgage in Minneapolis provided the following guideline:

If you have your first pay stub as a new professional employee, are borrowing less than $417K and have a Debt ratio of less than 45% (divide your total monthly base income into your monthly debts to calculate) If you are .45 or less you can most likely buy a home.

If you are buying a home that will result in a Mortgage Loan higher than $417K you are considered a “Jumbo” borrower. This loan is not sold on the secondary market (Fannie and Freddie) and is subject to higher scrutiny.

Look for HUD/FHA Loans

Jason Bonarrigo from Residential Mortgage Services in Braintree, MA says that "with a HUD/FHA loan, "if the lender can document student loans are deferred for more then 12 months, then the person does not have to use the student loan debt in the qualifying ratio's." HUD/FHA loans are popular government sponsored loans that often require lower down payments when purchasing a home. In general, HUD/FHA loans are only for conforming mortgages (less than $417,000) and often have expensive fees, but they are worth investigating.

Consolidate and Pay Down Debt Where Possible

The cleaner you can make your debt situation, the better. Mr. Sperr also offered the following advice:

Before applying make sure you do everything you can as a borrower to understand your student loan debt and its repayment terms. Make sure you know your other outstanding debts.

a.) Consolidate all separate student loans if possible into one payment.

b.) Pay down credit cards, car loans and other smaller debt that can be
controlled to improve ratios.

Malcolm Hollensteiner, Director of Lending Sales and Products at TD Bank advised borrowers to see if a family member can provide a gift and use it to "to eliminate consumer debt, rather than putting family money directly towards a house. In certain cases, eliminating or reducing consumer debt helps to increase buying power more than a higher down payment would."

Buy With a Friend or a Significant Other

Mr. Hollensteiner also advised that pairing up with a friend can increase a buyer's chances of obtaining a mortgage, "assuming both do not have considerable college debt." He advised that individuals considering this route "be cautious and thoroughly think the decision through. Future plans – including marriage and job relocations - could make this kind of partnership inconvenient down the road."

Another option is to purchase a house with a significant other, especially if the relationship is headed towards marriage. Once again, the borrower should carefully weight the pros and cons and think through what happens if the relationship does not work out.

Explore mortgage rates here.

Mortgage Rates Spike as Economy Heats Up; Will They Rise Higher?

Mortgage rates have spiked considerably over the past four weeks as a slew of positive economic data has hinted that the economy may be picking up steam. Will rates continue to rise?

Mortgage rates have spiked considerably over the past four weeks as a slew of positive economic data has hinted that the economy may be picking up steam. While Fed Chairman Ben Bernanke indicated on Wednesday that the Fed may eventually scale back its bond buying program, this is not the only impetus to the spike in interest rates. Mortgage rates had been rising considerably even before the Fed Chairman’s speech. The speech simply provided more evidence that the economy is mending and that the free money era of the last five years may be closer to ending than many expected or wanted.

The chart below shows that 30 year mortgage rates bottomed in December of 2012, while 15 year rates hit their low in February. 5/1 ARMs, which are based on short term interest rates are still near their lows (the Fed has more control over short term rates and has kept the main rate at 0%).

Mortgage Rate Trends

According to BestCashCow data, average 30 year mortgage rates are now 4.043%, up from 3.440% in December. In looking over our database, I’ve seen the number of lenders offering 30 year mortgages with no points and a rate below 4% shrinking considerably over the past month. The 4% 30 year rate will soon be extinct.

The NY Times ran an article saying that mortgage rates may stabilize soon. That’s possible but I’m not so sure. Rates on all kinds of bonds – corporate, federal, and municipal – spiked in the past two weeks and I think the bond market is looking ahead to accelerated growth. The bond market is often a better predictor of future economic activity than the stock market.

What Should You Do?

If you haven’t refinanced, do it. The risk of more rate increases is significantly higher than the possibility of lower rates. If you need to lock your rate I would also do that. As we’ve seen, rates can move up significantly in a short period of time. And if you’re waiting on the sideline to buy a house until rates come down, don’t do it. Mortgage rates are still historically low and timing the bottom is an impossible task.

No one really knows what is going to happen and even the best experts are proved wrong most of the time, but hopefully this provides you with a bit of perspective that you can use to make your own decisions.

Mortgage Broker Versus Mortgage Loan Officer - Which is Right for You?

In the process of searching for the best mortgage, you may come across both mortgage brokers and mortgage loan officers. What’s the difference and which one should you work with in securing the best loan at the best rate with the best service?

In the process of searching for the best mortgage, you may come across both mortgage brokers and mortgage loan officers. What’s the difference and which one should you work with in securing the best loan at the best rate with the best service?

Mortgage brokers are independent individuals who work for themselves. They interact with many different banks and lenders to help you find the best mortgage for the best rate. They have to be licensed. Because they are not associated with any one institution, mortgage brokers can contact banks across the country on your behalf, giving them a wide pool of potential lenders. Brokers often receive commission once a borrower’s loan is finalized. While they may be motivated to close your loan because of this commission, they can also be motivated to put a borrower into the wrong loan if the commission is higher. This happened quite a bit before the financial crisis.

Mortgage loan officers generally work for either the lending department of a bank (like Wells Fargo or Chase) or for a mortgage only lender (such as PrimeLending or Sente Mortgage). In both cases, the loan officer is a representative of that institution. Depending upon the type of institution they work for, the loan officer may or may not be licensed, although all mortgage lenders are required to take the same training. Loan officers work to help you find the best product from the institution they work for. Loan officers working for banks may or may not receive commission while those working for mortgage only lenders usually receive commission.

Which Is Better for You?

When trying to find the right loan, should you use a mortgage broker or a mortgage loan officer? Why not both?

Using sites like BestCashCow, you can identify lenders that offer competitive rates and terms for the type of loan you are looking for. Contact your bank or a mortgage only lender and see what they can do for you.

Find the best mortgage rates from banks near you.

At the same time, it doesn’t hurt to contact a mortgage broker to determine what their best offer is. Generally, if you have poor credit, a mortgage broker might be a better option because they can check a borrower’s numbers with multiple institutions.

If you need a loan to close fast, then a mortgage loan officer, particularly one at a mortgage only lender might be better. With a mortgage only lender, all processes are set up to quickly and effectively close loans. Also, you will work with an actual employee of the organization who knows the lender’s process and can more easily connect with the processers and underwriters who work on your individual loan.

Another consideration is the location of the broker or loan officer: someone who is local to your area will understand local conditions. Items such as unfamiliar heating systems, zoning codes, etc. can confuse big or out-of-town lenders, which can increase the time it takes to close.

The bottom line is that if you want to find the best mortgage product at the lowest rate, it makes sense to speak to a mortgage broker and a mortgage loan officer that specializes in mortgage loans.

;In the process of searching for the best mortgage, you may come across both mortgage brokers and mortgage loan officers. What’s the difference and which one should you work with in securing the best loan at the best rate with the best service?

Mortgage brokers are independent individuals who work for themselves. They interact with many different banks and lenders to help you find the best mortgage for the best rate. They have to be licensed. Because they are not associated with any one institution, mortgage brokers can contact banks across the country on your behalf, giving them a wide pool of potential lenders. Brokers often receive commission once a borrowers loan is finalized. While the may be motivated to close your loan because of this commission, they can also be motivated to put a borrower into the wrong loan if the commission is higher. This happened quite a bit before the financial crisis.

Mortgage loan officers generally work in the lending department of a bank. They are the representative of that institution. They do not need to be licensed and work to help you find the best product from the institution they work for. They often do not receive commission.

Which Is Better for You?

When trying to find the right loan, should you use a mortgage broker or a mortgage loan officer? Why not both? Using sites like BestCashCow, you can identify banks that offer competitive rates and terms for the type of loan you are looking for. Contact the bank and see what they can do for you.

Find the best mortgage rates

At the same time, it doesn’t hurt to contact a mortgage broker to determine what their best offer is.

Generally, if you have poor credit, a mortgage broker might be a better option because they can check a borrower’s numbers with multiple institutions.

If you need a loan to close fast, then a mortgage loan officer might be better, because they know the bank’s process and are an actual employee of the organization. In addition, because a mortgage broker is most likely local, they understand local conditions. Items such as unfamiliar heating systems, zoning codes, etc. can confuse out-of-town lenders.

The bottom line is that if you want to find the best mortgage product at the lowest rate, it make sense to speak to both a mortgage broker and a mortgage lender from a bank that specializes in mortgage loans.