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As of right now I am a senior in college in the United States. I have managed to secure a job once I graduate in May making around 78K. I started working at my year long internship in May of this year. My plan was to try and buy a small condo/townhouse. That way I gain equity in the residence I live in rather rent an apartment. I found this $150,000 condo which I planned to put at least $12,000 down. The going rate for a 30-year fixed loan is around 4%. I understand that the rate could change due to my circumstances. My question is, even if I have the money for the down payment, could the loan officer still deny me the loan because I don't have at least a "year's" worth of constant income?

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    Apart from what I've said in my answer below, I'd like to add: you say in your title and in the question that you "have the money" for the condo. However, you won't be working for 7 more months [and it is unclear if you have the down payment yet, or plan on saving for it after you start working]. So right now, you don't actually "have the money". "The money" for a house is not just the minimum mandated down payment amount, it is also the ability to make all the future payments until the loan is paid off. – Grade 'Eh' Bacon Oct 18 '17 at 15:48
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    @Grade 'Eh' Bacon: I'd be even more stringent. To me, when someone says they "have the money", that means they have all of it, not just a down payment. (But might choose to take out a mortgage to keep the money invested elsewhere.) But the OP apparently doesn't have the money, so the question, or at least the title, is misleading. – jamesqf Oct 18 '17 at 17:26
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    Equity in an owned home does not automatically make it better than renting. See The NYT Rent or Buy Calculator. You are young, just starting your career. Renting would be the default recommendation. – jamesbtate Oct 18 '17 at 19:48
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    I know anything containing "YOLO" is usually not sound financial advice, but seriously, don't buy a place right out of college. You will almost never again in your life have so little responsibility coupled with relatively high expendible income. Adventure around and see the world or do other things, before saddling yourself with such a responsibility. YOLO. Move into a rathole apartment for awhile and stockpile your cash. – whatsisname Oct 19 '17 at 5:40
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    More practically, people switch jobs a lot after college, many are on the hunt for a suitable spouse, etc, and there is value to only being in a 1 year commitment at a time. – whatsisname Oct 19 '17 at 5:41
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A financial institution is not obligated to offer you a loan. They will only offer you a loan if they believe that they will make money off you. They use all the info available in order to determine if offering you a loan is profitable.

In short, whether they offer you a loan, and the interest rate they charge for that loan, is based on a few things:

  1. How much does it cost the bank to borrow money? [aka: how much does the bank need to pay people who have savings accounts with them?];

  2. How much does the bank need to spend in order to administer the loan? [ie: the loan officer's time, a little time for the IT guy who helps around the office, office space they are renting in order to allow the transaction to take place]; and

  3. How many people will 'default' and never be able to repay their loan? [ex: if 1 out of 100 people default on their loans, then every one of those 100 loans needs to be charged an extra 1% in order to recover the money the bank will lose on the person who defaults].

What we are mostly interested in here is #3: how likely are you to default? The bank determines that by determining your income, your assets, your current debts outstanding, your past history with payments (also called a credit score), and specifically to mortgages, how much the house is worth.

If you don't have a long credit history, and because you don't have a long income history, and because you are putting <10% down on the condo [20% is often a good % to strive for, and paying less than that can often imply you will need mandatory mortgage insurance, depending on jurisdiction] the bank is a little more uncertain about your likelihood to pay.

Banks don't like uncertainty, and they can deal with that uncertainty in two ways: (1) They can charge you a higher interest rate; OR (2) They can refuse you the loan.

Now just because one bank refuses you a loan, doesn't mean all will - but being refused by one bank is probably a good indication that many / most institutions would refuse you, because they all use very similar analytical tools to determine your 'risk level'.

If you are refused a loan, you can try again at another institution, or you can wait, save a larger down payment, and build your credit history by faithfully paying your credit card every month, paying your utilities, and making your car and rent payments on time. This will give the banks more comfort that you will have the ability to pay your mortgage every month, and a larger down payment will give them comfort that if the housing market dips, you won't owe more than the house is worth.

My parting shot is this: If you are new in your career with no income history, be very careful about buying a property immediately, even if you get approved. A good rule of thumb is to only buy a property when you plan on living there for at least 5 years, or else you are likely to lose money overall, after factoring closing costs and maintenance fees. If you are refused a loan, that's probably a good sign that you aren't financially ready yet, but even if a bank approves you for a loan, you might not be ready yet either.

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    Good points. I would also add that since the bank's interest is in their profit from you and not your financial success, when they do approve a loan it will often be for more than you should practically take on. Don't assume that if you're approved for up to $400k that you should be buying a $400k home. – Travis Christian Oct 18 '17 at 16:56
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    The idea that banks "lend out the money they have on deposit" is not accurate, so (1) is misleading. – Yakk Oct 18 '17 at 18:23
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    @Yakk It is accurate enough for an answer at this level of technical knowledge. If you think avoiding a discussion of economic monetary policy and corporate borrowings makes an answer about mortgage approval less valuable, I'd like to hear how. – Grade 'Eh' Bacon Oct 18 '17 at 18:52
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    In the UK (and I assume this applies in the USA too), there is a 4th important factor: regulatory requirements. The bank might be very happy to lend on points 1 - 3 but still refuse the loan because it doesn't satisfy regulatory criteria. – JBentley Oct 19 '17 at 11:30
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    I think it's also worth noting that although trying again at another institution won't always result in further rejection, each application you make is kept on your credit file and (slightly) increases any given institution's likelihood of refusing your application. So making an "ambitious" application to multiple institutions just to see if you get lucky with one is a bad idea - it will make you look less suitable for a more "realistic" application at a later date and may force you into even more conservative borrowing. – Will Oct 20 '17 at 12:17
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My credentials: I used to work on mortgages, about 5 years ago. I wasn't a loan officer (the salesman) or mortgage processor (the grunt who does the real work), but I reviewed their work fairly closely. So I'm not an absolute authority, but I have first-hand knowledge.

Contrary to the accepted answer, yes the bank is obligated to offer you a loan - if you meet their qualifications. This may sound odd, and as though it's forcing a bank to give money when it doesn't want to, but there is good reason. Back in the 1950's through 1980's, banks tended to deny loans to African Americans who were able to buy nicer homes because the loan officer didn't quite 'feel' like they were capable of paying off an expensive house, even if they had the exact same history and income as a white person who did get approved. After several rounds of trying to fix this problem, the government finally decreed that the bank must have a set, written criteria by which it will approve or decline loans, and the interest rates provided. It can change that criteria, but those changes must apply to all new customers. Banks are allowed a bit of discretion to approve loans that they may normally decline, but must have a written reason (usually it's due to some relationship with the customer's business (this condition adds a lot of extra rules), or that customer has a massive family and all 11 other siblings have gotten loans from the same loan officer - random rare stuff that can be easily documented if/when the government asks). The bank has no discretion to decline a loan at will - I've seen 98-year-olds sign a 30-year mortgage, and the bank was overjoyed because it showed that they didn't discriminate against the elderly.

The customer could be a crackhead, and the bank can't turn them down if their paperwork, credit, and income is good. The most the loan officer could do is process the loan slowly and hope the crackhead gets arrested before the bank spends any more money.

The regulations for employees new to the workforce are a bit less wonderful, but the bank will want 30+ days of income history (30 days, NOT 4 weeks) if you have it. BUT, if you are a fresh new employee, they can do the loan using your written and signed job offer as proof of income.

However, I discourage you from using this method to buy a house. You are much, much better off renting for a while and learning the local area before you shop for a house. It's too easy to buy a house without knowing the city, then discover that you have a hideously slow drive to work and are in the worst part of town. And, you may not like the company as much, or you may not be a good fit. It's not uncommon to leave a company within a year or two. You don't want a house that anchors you to one place while you need the freedom to explore career options.

And consider this: banks love selling mortgages, but they hate holding them. They want to collect that $10,000 closing fee, they couldn't care less about the 4% interest trickling in over 30 years. Once they sign the mortgage, they try to sell it to investors who want to buy high-grade debt within a month. That sale gives them all the money back, so they can use it to sell another mortgage and collect another $10,000. If the bank has its way, it has offloaded your mortgage before you send the first payment to them. As a result, it's a horrible idea to buy a house unless you expect to live there at least 5 or 10 years, because the closing costs are so high.

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    "yes the bank is obligated to offer you a loan - if you meet their qualifications" Well yes that's the point I made in my answer - the bank has a set of criteria that they line you up against for a loan. Unless I'm missing something, I don't believe there's some sort of "minimum threshold test" in the US mandated by the government which requires a bank to give a loan under certain circumstances. The laws exist to prevent discrimination, not to force the bank to take loans it doesn't want. – Grade 'Eh' Bacon Oct 18 '17 at 20:09
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    Also "The customer could be a crackhead, and the bank can't turn them down if their paperwork, credit, and income is good" - show me a "crackhead" with 760 FICO, 100k in income and a down payment, and I'll show you someone who has proven their ability to pay off a loan. – Grade 'Eh' Bacon Oct 18 '17 at 20:10
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    mostly a language thing. reading your answer might make it appear like banks are more whimsical in decision making then they actually are. I find it useful to see that there is a set criteria per bank that applies to every costumer – OganM Oct 18 '17 at 20:51
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    There is actually a minimal threshold of sorts - Automated Underwriter, which is offered by both Fannie Mae and Freddy Mac, and use their criteria. These will approve the loan for insurance, so the bank will be willing to offer it 99.999% of the time. I don't know of any manual denials after an accurate automated approval - except one time when the house burnt down. A crackhead can have a 760 FICO and great income during earlier stages of addiction. There are functional addicts, up to a point. Look at Hollywood, it takes months for some of them to hit bottom. – user3685427 Oct 19 '17 at 18:02
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I've been a mortgage broker for almost 20 years. I get people loans all of the time thru FHA and Conventional (Fannie Mae) with just one year work history; however, as a student, you must submit your school transcripts and your major needs to be in line with your current job. I'm closing a guy next week that has only been in his job for 8 months but he just graduated with his Masters in Biology. He's currently a wild life manager and the underwriter signed off on it easily.

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    This answer would be stronger if it had citations and if it addressed the asked question directly. The question was if the loan officer could deny the loan. I believe that answer is yes, and then you are proposing that instead of relying on that standard, the asker should switch to proving that the job is in line with the major as an alternative proof of ability to pay. If that's correct then the answer should say something like that. – Brythan Oct 19 '17 at 0:33
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    It's also pretty poor advice to brush over the risk taken by the individual in getting a loan before even passing probation at their first job. Their risk might be your profit, but it's still disingenuous to ignore it - without even mentioning that such a high risk mortgage is going to have a much worse interest rate. – Grade 'Eh' Bacon Oct 19 '17 at 12:33
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I’ve been in the mortgage business for nearly 15 years. Your question is sort of multi-faceted and I’m surprised by some of these answers I’ve read! Anyway, I digress.

Yes, you can be denied even if you have money for a down payment. One of the BIGGEST factors lenders are now required to take into account when approving mortgages now is a person’s “Ability to Repay.”

Whether your traditional mortgages like Conventional, FHA, USDA, or VA loans, or even an “in-house” mortgage from a local bank —either way, the lender MUST be able to verify someone’s ability to repay.

Your issue is that you won’t have any verifiable income until May. A couple people have answered correctly in that 1) if you have a firm offer letter that can be verified with the employer, and 2) you can use your education/college to substitute for a two year work history as long as you’re graduating with and working in the same line of work.

Some programs require proof of 30 days of pay history once you actually start earning paychecks; some programs will use the offer letter as long as you will start earning paychecks within a certain number of days after the note date (basically when the payments start).

Also I’m making the assumption that there is some sort of credit history that can be verified. Most lenders want at least a couple of accounts reporting a history just to show good use of credit and showing that you can manage your finances over a longer period of time. Just about every lender has some sort of minimum FICO score requirement.

I hope this helps. If you have questions, just reply in a comment.

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    It's pretty poor advice to brush over the risk taken by the individual in getting a loan before even passing probation at their first job. Their risk might be your profit, but it's still disingenuous to ignore it - without even mentioning that such a high risk mortgage is going to have a much worse interest rate. – Grade 'Eh' Bacon Oct 19 '17 at 12:34
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There are loan options for those in your situation. It is very common. I am a licensed loan officer nmls 1301324 and have done many loans just like this. Your schooling is counted as your work history

Contrary to popular belief. We want to write loans and guidelines are easing. Banks are a different story and their loan officers aren't licensed. If you talk to a bank you aren't getting an educated loan officer. They also have what are called overlays that make guidelines stricter.

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    It's pretty poor advice to brush over the risk taken by the individual in getting a loan before even passing probation at their first job. Their risk might be your profit, but it's still disingenuous to ignore it - without even mentioning that such a high risk mortgage is going to have a much worse interest rate. – Grade 'Eh' Bacon Oct 19 '17 at 12:33

protected by GS - Apologise to Monica Oct 19 '17 at 12:43

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