I could put 80% down, will the bank give me a loan?

Question

Hey everyone, first time poster from Wichita KS. I'm 22, looking at buying a first house. I don't have any prospective homes in mind yet, I'm curious to know what you think I'd qualify for.

The Question:If I went to a bank and said I had enough money to put a high down payment on a cheap house, say, an 80% down payment, BUT I've made an income of less than 20k a year after taxes for the last 2 years since I'm self employed, what do you think my chances are for getting pre-qualified for a mortgage?

Likewise, say you have enough to put 80% down, if I can show that I have the cash, could I just put 20% down and use the additional cash to do cosmetic repairs to improve a house and increase the value?

Also, my credit score is 734 with only a $1,500 line of credit.

Thank you!

Joe Villeneuve · Answer

Why would you want to pay that much for a property?...as in 80%, if you only need to pay 20%?

Ron S. · Answer

You need to establish a history of paying your bills and earning income. Lenders use a debt ratio and usually, for housing debt, they want you in the low 30's percentile. Mid to high 40's on the back end (Which is your housing debt plus your credit debt) is acceptable. All that said, it's not what you make but what you report so, if you are self employed, they look at your net taxable income on your returns and then add back your depreciation (if applicable). That's the income you get credit for being self employed. If you write everything off and show a loss on your returns, you aren't getting financing.

Your FICO score is high but, it's like an IQ score. We all know people that have high IQ's, but couldn't' walk across the street without getting hit by a bus. You need more depth in your score and your one 1,500 trade-line, usually isn't enough. That said, you can build credit non traditionally if you have half a brain from a lender.

You will also be faced with minimum loan sizes. Putting a bigger down doesn't impress anyone (I acknowledge that's not what you are trying to do, just saying). Depending on your down payment, if your loan amount is below $50,000, you could have problems getting financing because your fees and costs could put your loan into high cost and if it isn't high cost, the rate increases for low loan sizes could make it expensive.

My two cents.

Tim Houzenga · Answer

@Logan McNay

Go to the bank with your income broken down over the last 6-9 months, a list of any assets you own (or savings or checking accounts), how much you owe (loans or credit cards), and ask them what they would be able to lend you and why.... or how you could improve your lending profile.  If you don’t like the answers go to several other banks and see if they sing the same tune.  Big banks, regional banks, and credit unions are not created equal so check em all out.  You’ll learn a lot about lending and a lot about yourself.

David M. · Answer

@Logan McNay

Direct message if you want a referral to a mortgage lender of mine who done some stuff with low income / self employed people.

Anna Buffkin · Answer

Firstly, are you buying this house for you as a primary residence or investment property?  I will assume investment property as this is posted on the starting out forum.  Here are a few other ideas to toss around:

• If you can put 80% down, why not just find a property you can buy for 100% cash a little cheaper.  Get your income up while making improvements to increase the property value and then refinance 75-80% out in 6 months to a year or sell and use the cash to move on.  
• 
• Rather than a house is a duplex in your price point? Buy it cash if you won't qualify for a loan.  Rent one side and then get a loan later on using the income from the rent to boost your income.  Better yet, get a roommate as well to pay you rent.  
• 
• Is a mortgage your only option?  Granted all my loans are bank loans, but can you find money from other private sources.  If not, if you can come up with 80%, can you get the remaining 20% using a personal loan or line of credit.
• 
• Also, you don't know until you ask, go to a bank and see what if anything you qualify for.

Ron S. · Answer

i don't think commercial is more flexible if you have no history, especially if you are buying a single family residence, as even a commercial loan will have to conform to  ability to pay rules for consumers if the property is a SFR. Buying 20 SFR's in a pool? Ok, yeah, your direction might be better but buying one SFR as a commercial borrower is not going to happen for this guy.

Matthew Irish-Jones · Answer

@Logan McNay you should go to a bank and ask.  If you are in the less than 20K range for income its going to be tough to get a loan.  80% down may work but, they will want to know where that money came from.  Usually banks are not willing to make too many adjustments for someone they have not done a deal with in the past.

Francois G. · Answer

If you're going to put 80% as a down payment, IMO you're better off waiting until you earn that other 20% and just buy the property all cash. Obviously the strategy that gives you the most leverage would be to put 20% on 4 properties instead of 1 property but it looks like your financial situation is going to make that tough.

You have a great credit score. The sub $20k in income the last 2 years is what's going to make it tough. Have you thought about HML then refinance? It looks like you're going to have to get creative with your financing but it can certainly be done especially with that credit score and amount for a down payment.

Kenneth Garrett · Answer

@Ron S.

I have done many commercial loans on both SFR and multi-families.  It’s much easier.  He is going to need a partner/mentor for his first since he has no track record as I had mentioned.  Agreed he will still need to sign a guarantee on the loan.  If we’re creative enough we can get things done even if it’s unconventional.  Thanks for your comments.

Kenneth Garrett · Answer

@Logan McNay

You might try commercial financing since they are more concerned about the property cash flowing then you.  They will still run a credit check and you will likely need a partner so you can show experience or at lease a mentor.  Commercial is much more flexible.  Unlike residential loans they don’t care where money cane from.  If Aunt Sally gave you $50 for your birthday and you deposited that money you would need to confirm where that money came from.  Commercial is not like that.  The interest rate will be higher, but it’s worth looking into.  Don’t go to the big banks, try small local banks in your area.

I could put 80% down, will the bank give me a loan?

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