I couldn’t believe what I just read!!!
Good news for home buyers with student loan debt
Isn’t she (Fennie Mae) so charming? Every time when she comes up with something sweet, there is huge bitter consequence.
So, let’s see what she is basically hypnotizing you with. She is saying that she is going to let students consolidate their student loan with new home loan. Well, in short, that’s brilliant! Instead you paying student loan for no gain, if you buy home, you get a “property”. Really?!
Disclaimer: I am not going to calculate all the % gains and losses. I am just going to show simple calculation so that I can pass my message.
She is saying that there will be huge benefit when a student purchases a house and do a “cash-out” refinancing to pay off your student debt. Sounds like very sweet deal!
Let’s say you have a $100,000 student loan and you are looking at a $200,000 condo. (I am in Orange County, CA. $200,000 one-bedroom condo is cheap!) Just the house mortgage of $200,000 would be somewhere around $1000/month. That’s without a dime of down payment, not considering all other fees involving purchase of a property, and not considering property tax/insurance. At this moment, it sounds pretty good. You got a house that costs less than renting an apartment and you are out of your parents’ home! Now, don’t forget that you are refinancing your student debt to the mortgage. That’s another $100,000 on top of your mortgage. So, total of $300,000 mortgage loan. Your payment would probably go around $1300 or so.
So, what’s going on here. Why is this scary deal?
First of all, you won’t have a job that you would be able to afford $1300+ payment on top of other payment that you have to pay; home owner’s insurance, property tax, PMI (mortgage insurance that you have to pay if your down payment is less than 20%), HOA, and utility bills. Monthly bills would easily add up to $2000/month. That would probably be your entire paycheck just off of college for the most of college graduates. Not to mention that most of college graduates won’t even have 20% down payment for the condo of $200,000.
Below age of 35, average Americans have $12,000 savings. $200,000 condo 20% down payment is $40,000. If college graduates had that much of cash, they probably never owe a penny on student loan.
Can a student even get a loan? I don’t think so. I had to borrow my mother’s credit in order to finance my first home. Most of college student’s credit score would be below 650 or none.
You won’t even get a personal loan with that credit score and how would a student get a mortgage loan?
Let’s say you somehow got the mortgage loan and you got approved for $200,000 + $100,000 refinance. You are buying $200,000 condo for $300,000. You think so? I think it’s much more! If you simply pay for your mortgage for 30 years, you would end up paying close to 2.5x of what you originally owed. $300,000 loan, you would end up paying for… are you ready? $750,000!!! Hahahahahahaha!!!
Are you serious?!
What I think of this? I think she is trying to make you pay off student loan with new mortgage so that she gets her money and transfers that loan to banks. Banks will get very nasty when you don’t make payment. Your life would be much more miserable than not paying the student loan.
I know there are much more to this article but this is how far I will dig in. =p