The extent to which student debt is keeping Millennials from buying homes is debatable. But for high-earning young professionals who are saddled with such loans, a Florida investment advisor says he has devised a path to homeownership.
In the next six to eight weeks, John Burkey will launch the BurkeyLoan, which combines borrowers' student loans and their mortgages.
"Basically," he said, "they will be refinancing their school loans into their mortgages."
Initially, BurkeyLoans will be aimed at college graduates with "top-tier work and academic profiles" who seek jumbo mortgages in the $425,000 to $600,000 range. But by year's end, Burkey said, the new mortgage product should become available for those needing financing for houses in the high $200,000s.
Student debt is considered in many circles to be an impediment to qualifying for a mortgage. According to the Brookings Institute, after the typical undergrad with a bachelor's degree and $30,000 of debt makes a $350 monthly student loan payment, there often isn't enough left over to make a mortgage payment.
But the nonpartisan research group says the main driver between housing haves and have-nots is
Burkey and others have a different take, though. He says grads with a four-year degree leave with $35,000 in debt. But those who go on to graduate school leave owing somewhere in the neighborhood of $53,000 to $54,000. And if they go to medical or law school, they end up being "saddled solidly with six-figure debt."
It is those higher-end graduates he is targeting. He calls them "high-performance Millennials" and says there are perhaps as many as 11 million of them. "We are aiming for the top 20% in income distribution who went to the top-tier schools and have great work experience."
Here's how a typical BurkeyMortgage might work: Say the would-be homebuyer is looking at a $500,000 house but has $50,000 in outstanding student loans. He would roll the two amounts into a single mortgage. But he would have to make a down payment of close to $50,000.
That would leave a balance of $500,000, which would be almost equal to a 100% loan-to-value mortgage. The rate on the mortgage would be far less than that on the student loans, which currently run between 6% and 7%.
While this seems eerily similar to old-fashioned subprime loans, Burkey says it's not. Borrowers will have to have "almost perfect credit" and work in professions in which if they lose their jobs, they will be able to get another in four to six weeks, no problem.
Also, borrowers will be underwritten largely on how much money they have left to pay their other bills once they make their mortgage payment rather than on their income levels.
Another loan feature will allow borrowers to temporarily make lower monthly payments for three consecutive months for "life events" such as the birth of a child or a divorce. Of course, interest will continue to 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 said he is aiming at the high-end market first to perfect the product. Once that is accomplished, he expects to "go lower."
