Getting a mortgage right after college
By: Gina Pogol
You’re graduating from college, eager to start “real life” and ready to ditch your dilapidated digs in favor of more adult accommodations. You’ve weighed the pros and cons of homeownership and have decided to invest in real estate as soon as possible. Of course, homeownership for people other than Trumps or Kardashians usually involves a mortgage, and getting approved for one could be tougher than snagging a 4.0 GPA. Do you have what it takes?
Hurdle #1: Employment
Unless you have a generous trust account or other passive income, you need employment to get a mortgage. It’s the underwriter’s job to determine if your employment income is sufficient to pay a mortgage and your other obligations. He or she decides if that job is stable enough to be acceptable as a source of income and verifies that the income can be expected to continue for at least three years.
Many mortgage lenders require a two-year work history before they’ll consider employment income. However, most make allowances if any positive factors (like those listed below) are present.
- You’ve received increased responsibility and income at work. An internship followed by an offer of full-time employment is more impressive than a summer stint as a theatre usher followed by a month of unemployment and eight weeks of bartending.
- Your income is expected to increase significantly – for example, you’ve just received a medical degree.
- Your industry is stable and your position in high demand. You’ve just been offered a software engineering position in a health care network – congratulations!
FHA is more flexible. Its guidelines state that:
To be eligible for a mortgage, FHA does not require a minimum length of time that a borrower must have held a position of employment. However, the lender must verify the borrower’s employment for the most recent two full years, and the borrower must explain any gaps in employment that span one or more months, and indicate if he/she was in school or the military...
If you’re self-employed or on commission, however, it will be virtually impossible for you to secure a mortgage until you’ve been at it for two or more years.
Hurdle #2: Payment Shock
A big factor in mortgage underwriting, and one that gets very little mention outside the mortgage industry, is payment shock. Payment shock refers to new housing expense (including mortgage principal and interest, property taxes, homeowners insurance and HOA dues) that significantly exceeds your previous housing expense. If you’re currently paying $1,000 a month for rent and your new housing expense would be $1,200 a month, payment shock is just 120 percent and not considered a problem. If, however, you were splitting an apartment with five buddies and paying $100 a month, your payment shock balloons to 1200 percent! That’s a potential problem because underwriters worry about your ability to handle a big jump in expenses. You may have to increase your savings or your down payment to make lenders more comfortable.
Hurdle #3: Limited Credit History
According to mortgage data firm Ellie Mae, the average FICO score for purchase mortgages guaranteed by Fannie Mae and Freddie Mac was 762 (compared to 729 for denied applications), while FICO scores on FHA-backed purchase loans averaged 701 (compared to 665 for denied applications). Sadly, according to Credit Karma, the average credit score for Americans under 34 is less than 640. It takes time to build a solid credit history and exemplary scores, and many younger grads haven’t been around the block enough to develop one.
All is not lost, however. FHA guidelines specifically prohibit penalizing applicants for not using consumer credit, so if your file is “thin,” your lender can order a “non-traditional” credit report, using your payment history from utility companies, landlords and other accounts to determine that you manage your finances responsibly. Even a series of regular contributions to a savings account can be used to demonstrate that you habitually take care of business.
FHA and some other programs also allow co-signers or co-borrowers to beef up your application when the problem is too little credit rather than bad credit. A larger down payment (say 10 percent instead of 3.5 percent) may help you secure an approval as well.
Hurdle #4: Those Student Loans
If your income is $40,000 per year and you pay $250 for car loans, credit cards or other monthly debts, you qualify for a mortgage of about $141,000, according to LendingTree’s Home Affordability Calculator (conservative scenario, $10,000 down and a 4.0% rate). However, graduates who borrow their tuition are exiting college with an average balance of $26,600. The payment on that pile at 3.8 percent over ten years is $320 – and that payment reduces what you can borrow to just $46,496! You may be able to help your cause with a student loan refinance. According to FinAid.org, you can extend your repayment to as much as 30 years (the payment in our example drops by nearly $200 with a 30-year term), or you can select a graduated payment, which gets you a lower payment in the early years, then gradually increases it as (hopefully!) your income rises.
Getting a mortgage when you’re fresh out of college presents challenges, but if you’re really ready for homeownership, you should be able to finagle a home loan approval.
Author Bio: Gina Pogol spent over a decade in mortgage lending, originating, processing and underwriting home loans. She has written about mortgage rates and finance issues for a number of publishers since 2006. Currently a senior marketing manager with Lending Tree, Gina advocates for consumers and loves answering their mortgage and personal finance questions.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.