Has anyone tried pre-qualifying or applying for a mortgage while still in Phase 1? I have another year before going to Phase 2, and I'm wondering how early I can start the house-buying process (i.e. do I need to wait for an official job offer to show proof of sufficient income?). I'd like to be able to close on a house before I start Phase 2 or shortly after starting Phase 2 so that I can minimize my time in temporary housing.
When I was showing proof of income for an apartment a few years ago, my SMART offer letter was sufficient. I understand, though, that buying a home is a completely different game than renting an apartment.
I toyed with the idea of buying a house a couple of years ago, and I was told by one mortgage lender that the SMART scholarship (through the 1099-MISC) was considered a fellowship and not income. My feeling is that different mortgage lenders will have different opinions/options on what constitutes proof of sufficient income. I've read that some accept W-2 forms (which we don't get) while others accept tax returns and yet others accept bank statements.
Has anyone else tried applying for a mortgage while in Phase 1? In addition to W-2 forms, tax returns, and bank statements, will the initial SMART offer letter and post-graduation contractual obligation work as proof of sufficient income?
Proof of Income for a Mortgage in Phase 1
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hypersonic09
- Posts: 4
- Joined: Sun Jun 09, 2013 12:19 am
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haaaay
Re: Proof of Income for a Mortgage in Phase 1
If it helps in any way, my tax forms were reported as misc income.
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empty
Re: Proof of Income for a Mortgage in Phase 1
I've been through this a couple of times with a couple of different lenders. My experience has been that it depends how you approach them and what wording you use.
1. If you tell them that your income is from a fellowship, they won't count it as steady income when accounting for the mortgage. Apparently this is some sort of fannie mae/freddie mac stipulation, so if they want to sell it as a derivative (as pretty much all are) it needs to follow these guidelines.
2. If you tell them you are an independent government contractor (which you are) then they'll typically require 3 years of tax returns to demonstrate your level of expected income.
3. They won't accept the whole "SMART says I'm going to be employed..." or the SMART "contract" as any thing of value. I was told that once you have your DoD offer letter from your SF, they will take that into account for future income purposes. However, I know for my SF (which is through Army Research Lab), an offer letter can't be put together until your degree is officially posted... which for my school is something like 2 weeks after the graduation ceremonies. This makes for a royal pain the rear and also means you won't start working at your SF "right after graduation" because of that administrative tie up (which really isn't any group's fault, it is just the system in place).
Anyhow, that is my experience. Stay away from saying anything about a "fellowship" or "scholarship" and just tell them that you are an independent defense contractor with reliable income and be ready to pull out three years of tax statements.
1. If you tell them that your income is from a fellowship, they won't count it as steady income when accounting for the mortgage. Apparently this is some sort of fannie mae/freddie mac stipulation, so if they want to sell it as a derivative (as pretty much all are) it needs to follow these guidelines.
2. If you tell them you are an independent government contractor (which you are) then they'll typically require 3 years of tax returns to demonstrate your level of expected income.
3. They won't accept the whole "SMART says I'm going to be employed..." or the SMART "contract" as any thing of value. I was told that once you have your DoD offer letter from your SF, they will take that into account for future income purposes. However, I know for my SF (which is through Army Research Lab), an offer letter can't be put together until your degree is officially posted... which for my school is something like 2 weeks after the graduation ceremonies. This makes for a royal pain the rear and also means you won't start working at your SF "right after graduation" because of that administrative tie up (which really isn't any group's fault, it is just the system in place).
Anyhow, that is my experience. Stay away from saying anything about a "fellowship" or "scholarship" and just tell them that you are an independent defense contractor with reliable income and be ready to pull out three years of tax statements.
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hypersonic09
- Posts: 4
- Joined: Sun Jun 09, 2013 12:19 am
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Re: Proof of Income for a Mortgage in Phase 1
Thanks, empty, for the very helpful reply. I hadn't though about going with the "independent government contractor" explanation to a lender or realtor, and I agree that it's all about how you word it.
As much as I really want to get my ducks in a row for home-buying around the time I graduate, I'll probably end up pushing it all off until I've started Phase 2.
A few reasons for this:
1) Recent reports (as evidenced by other recent threads on this forum) of Phase 1 scholars not being hired on to the SF due to hiring freezes/furloughs/budgets. I don't want to buy a house and then be stuck not having a job to pay the mortgage bills.
2) The mobility and 2-year clauses in the Service Agreement I signed in 2009 when accepting the scholarship. Due to reason #1, I now take these clauses a little more seriously. I don't want to buy a house in a place that, however slim the chance, I may not end up in.
3) I'm in a place where the SF is a large entity in the local community, and since Military PCS rotations occur mostly in the summertime, it'll be a seller's market in the time frame I originally wanted to buy in.
As much as I really want to get my ducks in a row for home-buying around the time I graduate, I'll probably end up pushing it all off until I've started Phase 2.
A few reasons for this:
1) Recent reports (as evidenced by other recent threads on this forum) of Phase 1 scholars not being hired on to the SF due to hiring freezes/furloughs/budgets. I don't want to buy a house and then be stuck not having a job to pay the mortgage bills.
2) The mobility and 2-year clauses in the Service Agreement I signed in 2009 when accepting the scholarship. Due to reason #1, I now take these clauses a little more seriously. I don't want to buy a house in a place that, however slim the chance, I may not end up in.
3) I'm in a place where the SF is a large entity in the local community, and since Military PCS rotations occur mostly in the summertime, it'll be a seller's market in the time frame I originally wanted to buy in.
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Eumpfenbach
Re: Proof of Income for a Mortgage in Phase 1
SHORT ANSWER -- I was able to get a mortgage in Phase 1 but it is not easy.
I am hesitant to say "don't bother with banks" but don't bother with banks. Because they don't hold mortgages (just sell them off to freddie and fannie...not getting any further into that process than that) they are subject to a ton of regulations. You likely won't meet the requirements and even if you do, the bank has the right to say "we just aren't comfortable lending to a student", which is likely to happen.
If you want to do this, you need to go through a credit union. They have the ability to hold the mortgage internally and more process flexibility. Your case will be put before something like a "credit committe" that will make a decision whether you are worth the risk. You will need to make the best case possible. I had a letter from SMART that outlined how the process works as well as minimum expected salary when I graduate. You need to put a good downpayment down (tough to say exactly, but at least 10%), which will protect the credit union from a foreclosure in the event the market goes down.
Lastly, the credit union is taking on what they consider a risky loan. Expect to pay a higher interest rate. I have an 800 credit score, which should have gotten me a 30 year rate around 4%. I locked in at 5.25%.
In the end, though, I got an awesome house for $145k (a whole lot of house in the Detroit Area) and I bought just before a big run in the real estate market, so the higher interest is balanced by a big increase in equity. I have the option to refinance now (in phase 2), but with the change in Fed policy lately, the interest rates have gone up a point already and there really isn't a point.
Good luck if you or anyone else tries.
I am hesitant to say "don't bother with banks" but don't bother with banks. Because they don't hold mortgages (just sell them off to freddie and fannie...not getting any further into that process than that) they are subject to a ton of regulations. You likely won't meet the requirements and even if you do, the bank has the right to say "we just aren't comfortable lending to a student", which is likely to happen.
If you want to do this, you need to go through a credit union. They have the ability to hold the mortgage internally and more process flexibility. Your case will be put before something like a "credit committe" that will make a decision whether you are worth the risk. You will need to make the best case possible. I had a letter from SMART that outlined how the process works as well as minimum expected salary when I graduate. You need to put a good downpayment down (tough to say exactly, but at least 10%), which will protect the credit union from a foreclosure in the event the market goes down.
Lastly, the credit union is taking on what they consider a risky loan. Expect to pay a higher interest rate. I have an 800 credit score, which should have gotten me a 30 year rate around 4%. I locked in at 5.25%.
In the end, though, I got an awesome house for $145k (a whole lot of house in the Detroit Area) and I bought just before a big run in the real estate market, so the higher interest is balanced by a big increase in equity. I have the option to refinance now (in phase 2), but with the change in Fed policy lately, the interest rates have gone up a point already and there really isn't a point.
Good luck if you or anyone else tries.
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Eumpfenbach
Re: Proof of Income for a Mortgage in Phase 1
I guess I would add too -- This worked out for me because my house, school, and SF are all within about 10 miles of each other. Makes this whole thing feasible. Assuming that is not the case for 90% of SMART scholars.