Graduating college is exciting, yet if you are unable to purchase a house because you have not yet started your job, it can put a damper on things. New grads that do not want to move back in with mom and dad, yet have a job lined up that does not begin for a few months have options today. One option is to get an Offer Letter Loan. These loans were a thing of the past after the mortgage crisis. Banks tightened up their requirements and refused to provide loans to anyone that did not have concrete proof of receipt of their income. Today, banks are loosening those requirements for a certain set of people – mainly those graduating college.
How Offer Letter Loans Work
An Offer Letter Loan, is just as the name suggests. You have to provide the offer your future employer provided you with in order to get qualified for a mortgage. This means you have to have a concrete offer letter that is non-revocable. If the offer is not in writing, there will not be a loan. If you have a letter that clearly states your start date, salary, and position, then you may qualify for the loan if your other credentials are in line. The one stipulation, however, is that you must start the job within 90 days. What this means for most graduates is waiting until they physically graduate and are about to start their job before they can close on their loan, which is acceptable for most grads.
Your Assets Matter
One of the largest factors in the Offer Letter Loan is the amount of assets you have on hand. Lenders are willing to extend credit to those with an offer letter stating future income as long as they can provide that they have money on hand to pay for the mortgage before their job starts. In general, you need to show proof of money that covers the time between your closing and the start date of your job as well as an additional 3 months in reserves. For example, if you are starting your job the full allowable 90 days out, then you need 3 months in reserves to cover that time period along with 3 months of standard reserves – so you need a total of 6 months in a liquid account, such as a checking or savings account.
The Property Type
Another stipulation of the Offer Letter Loan is the type of property you can purchase. It must be a single family, detached home, condo, or townhome. What the property cannot be is a multiple dwelling home, such as a two or three-flat. These types of homes are riskier for lenders and are not eligible for this type of loan. In addition, you must provide that the home is your primary residence; you cannot purchase it for investment purposes or as a second home.
Should you Take an Offer Letter Loan?
Now the question becomes, should you take an Offer Letter Loan before you start your job? As a new graduate, that is a complicated question. If this is your first home and your first time out on your own, a mortgage is a big undertaking. You have to truly understand what you are getting yourself into before you jump in headfirst. If you know your job is going to pay you well and that you can manage to pay the mortgage along with the other daily living costs comfortably, then go for it. If you have excessive reserves on hand, then you are even better off. If you do not have a lot of reserves beyond what is required for the mortgage and are not sure about managing your finances, it might be best to wait until you have a few months to a year of steady income coming in before you decide what is right for you.
The key to any type of mortgage is to shop around. Every lender provides different terms, rates, and costs. In addition, every lender has something different that they will allow. What is too risky for one lender might be perfectly acceptable for another. If you are sure about taking on an Offer Letter Loan, shop around as this is one of the loans that differs greatly from lender to lender. If you have good credit and plenty of reserves, you should be able to find a lender that offers good terms and low costs, allowing you to get into your home and get settled before you even start your first day on your new job as a new graduate.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.