High levels of student debt can often make it impossible for millennials to purchase a home, but now one mortgage company has created a new product.
Developed by financial company Burkey Capital, this mortgage is expected to be introduced in the fall. According to the article in realtor.com, its aim is to help college graduates become homeowners by allowing them to include their student debt in a 30 year fixed mortgage. At the moment there is very little information available about this mortgage or the company behind it and the article questions whether it’s too good to be true.
Apparently it is targeting borrowers who are in the top 20% of earners and who have good credit. Potential borrowers should also have three or four years of work experience where they have already earned at least $150,000 a year. These would-be homeowners will typically work as doctors or lawyers or in medicine, so in areas where they can easily get another job if required. This is likely to exclude most college graduates.
At first the program will only be available for jumbo loans starting at $417,000 but the aim is to eventually drop this to allow property purchases in the mid-$200,000. Potential borrowers will still need to put down a 10% deposit that includes both the price of the home and the outstanding student debt. So for example a college graduate intending to buy a $450,000 home and who has $50,000 of student debt, would need a $60,000 down payment. However some buyers may be required to put in less. The mortgage will also take into account major life events such as illness or a death in the immediate family and will allow payments to be deferred for a period of time.
Apparently Burkey Capital is a family-owned investment company and its CEO intends to fund the loans through institutional investors including endowments and pensions and who will invest in a fund that buys the loans. Eventually the aim is for the company to expand into real estate investment trusts. The CEO is currently in the process of licensing the mortgage in all 50 states.
As the article points out, one thing to bear in mind is that mortgage rates may not be so competitive and could be about 1.4% higher but this will depend on the size of down payment. There are also concerns that this type of loan could prevent homeowners from refinancing or selling, or even securing a line of credit.
Photo Credit: State Farm via Compfight cc