A recent college graduate who is trying to secure a California home loan, or a loan in any state for that matter, needs a loan program that has flexible guidelines. An FHA loan offers that flexibility when it comes time for qualifying for the home loan.
Being that the graduate recently attended school, they are not required to meet the entire two year work history requirement that a Fannie Mae or Freddie Mac conventional loan requires. An FHA loan will allow school attendance credit towards the two year work history.
Being in the workforce full time for one year coupled with the prior year being in school satisfies the two year work history guideline, which again many conventional lenders of today aren’t allowing. If the home buyer is working in the field in which they received their degree, that would help the overall chance of getting approved for a home loan, however it’s not necessarily required. Lenders and underwriters may have differing views and rules when it comes to this scenario so it’s wise to check first with your Loan Originator before you enter into a loan application to how this situation is viewed before they pull your credit report.
In addition, an FHA loan may allow for longer employment gaps. For example, if the graduate decided to take three months off after graduation prior to gaining employment, FHA is more lenient than Fannie Mae conventional lending.
Also FHA may allow non-occupant co-borrowers, conventional loans don’t. If the bank of Dad and Mom runs dry after paying years of college tuition, and they aren’t able to donate a cash gift toward buying a home for their child, they can go on the loan to aid in qualifying for the home loan even if they aren’t going to be living in the property. Again conventional Fannie Mae and Freddie Mac loans do not allow this.
These FHA guidelines are nothing new but with today’s ever changing Fannie Mae and Freddie Mac lending environment it’s easy for real estate professionals to forget them and most consumers don’t know these differing rules even exist. FHA is here to stay and consumers and real estate professionals need to remember that even with these looser guidelines, including accommodating lower credit scores, the interest rates are very close to what Fannie Mae and Freddie Mac conventional loans offer. So whether you’re a college graduate or not, this is valuable information for all prospective home buyers to know prior to searching for a home to purchase.