Mortgage for Studentds with Big Debt

There is a debate going on surrounding the topic of student debt keeping millennials from buying homes. One side says high-earning young professionals are saddled with student debt, while the other side other factors are to blame.

However, there is a path for these young people to buy their first home. A Florida investment advisor says he wants to launch a “BurkeyLoan” which combines the borrowers’ student loans and their mortgages. This is essentially refinancing their school loans into their mortgages.

BurkeyLoans will be targeted at college graduates who have “top-tier work and academic profiles” who are applying for mortgages around $425,000-$600,000. At the years end, this new mortgage product should be available for those needing homes in the $200,000 price range.

Student debt is one of the obstacles that is blocked millennials from obtaining a mortgage. There often times isn’t enough money to pay a mortgage once they make their student loan payment that month.

The main driver between housing haves and have-nots is education, and not the debt used to fiancé it. Men with bachelor’s degrees earn $35,000 more a year than those without a degree, and women ear n $25,000 more. That much money can go a long way with a home.

The other side of the argument is that grads with degrees leave with $35,000-$54,000 in debt. And if they decide to go to medical and or law school, they can potentially end up with six-figure debt numbers.

The millennials with the higher end debt are considered “high-performance millennials” and there are roughly 11 million of them. BurkeyLoans is aiming for the top 20% of income distribution who went to the best schools and has great work experience.

A BurkeyLoan might work like this: If a student is trying to buy a $500,000 house but has $50,000 in student debt he would roll the two amounts into a single mortgage, but would have to make a down payment close to $50,000.

This would leave a balance of $500,000 which would be nearly equal to a 100% loan-to-value mortgage. The rate of your mortgage would be less than that on the student loan, which is roughly around 6% or 7%.

You may be thinking this is somewhat similar to subprime loans; the difference is that borrowers have to have nearly perfect credit for this to work. If they happen to lose their jobs they can get a new one within four to six weeks no problem. The borrower will also be underwritten largely on how much money they have left to pay on their bills once they make their mortgage payment instead of on their income levels.

Another loan specific is that borrowers are allowed to temporarily make lower monthly payments for three consecutive months for “life events” like a child being born or divorce. On the other hand interest will accrue during that period, and escrows will be recalculated once the borrower resumes making regular payments.

Burkey plans to originate the loans directly and hold them in his firm Burkey Capital’s investment funds. He is aiming at the high-end market first to perfect the product, and once accomplished, he expects to go “lower”.

To me, this doesn’t sound like the best idea, but then again, I don’t have Capital investment firm. 

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