Mortgage Options for High Income, Good Credit, Small Down Payment

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Mortgage Options for High Income, Good Credit, Small Down Payment

Anthony Lacko
Member since 2021 · 3 posts · 2 votes

Hi All!

A little background... 

I have been dreaming of investing in real estate for a few years now. Initially, I want to purchase a home for myself first (currently renting), then look into a condo or small SFH to update and rent out. I am an above average DIYer. I paid my way through college by apprenticing plumbing and carpentry. I am also a licensed mechanical engineer. I would like to add some sweat equity to the properties.

My ultimate goal is to own a portfolio of properties that cash flow enough money where I can quit my full time job and go contracting part time throughout the year. I like my job, but I want to pick what, when, and where I work. 

I live in San Diego, CA and my household W2 income is around $150k a year (although most of the last decade it has been just shy of $100k). Last time I checked my credit score it was 790. Since graduating, I got married, paid off the wedding, my student loans, saved up an emergency fund, and was very close to having a nice down payment for my first house.

The issue...

A few years ago I had a medical issue that basically wiped out my savings besides retirement accounts. I am grateful everything is going good now, but I am still a little bitter that all that work saving disappeared virtually overnight. 

I was simply going to bite the bullet and just start saving again, but there are three things happening now that motivate me to explore other options: inflation/rates/policy/etc., FOMO pricing in SD (houses near me are $750k to start), and my first bundle of joy is due in October :)

With no down payment, I am looking for advice on how I should pivot my plans - for both purchasing my primary residence and starting my real estate investment journey! I am hoping there are some creative solutions I just don't know about. 

Thanks!

 

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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
5y

Your salary is pretty good and your credit score is pretty good. I fail to see it as a big problem. FHA loan at 96.5% LTV. Save up 3.5% (plus closing costs) or make an offer that will provide a rebate at closing. it does not seem that hard at your household salary

Consider Pivot from your planned two step approach to purchasing a detached duplex with each unit having its own yard space.  A percentage of the rent from the other unit will apply to qualify for the loan increasing the value of the property you can qualify for.   

5% appreciation of $800k is more than 5% of $700k.  In addition, the tenant is paying down some of your equity.  

your challenge seems easily overcome without great sacrifice. Your household income is almost double the median San Diego household income. It should not be a great challenge to save the 3.5% required for an FHA loan.

Good luck

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    5y

    Your salary is pretty good and your credit score is pretty good. I fail to see it as a big problem. FHA loan at 96.5% LTV. Save up 3.5% (plus closing costs) or make an offer that will provide a rebate at closing. it does not seem that hard at your household salary

    Consider Pivot from your planned two step approach to purchasing a detached duplex with each unit having its own yard space.  A percentage of the rent from the other unit will apply to qualify for the loan increasing the value of the property you can qualify for.   

    5% appreciation of $800k is more than 5% of $700k.  In addition, the tenant is paying down some of your equity.  

    your challenge seems easily overcome without great sacrifice. Your household income is almost double the median San Diego household income. It should not be a great challenge to save the 3.5% required for an FHA loan.

    Good luck

    3Reply
  • Maxwell Ventura
    Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes
    5y

    @Anthony Lacko

    Agree 100% w/ Dan. Take advantage of investing of capitalizing on SD's incredible appreciation and maximizing the return on your investment by leveraging debt. Come in w/ 3.5% - 5%. Shouldn't take long to do so w/ your salary. 

    Have you spoken w/ a reputable lender yet?

    Depending on how much of a buyers lens vs investors lens you have the duplex option is a great idea too. Duplexes w/ any kind of decent unit mix other than 1/1s tend to start around $700k and go up from there. 

    0Reply
  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    5y

    @Anthony Lacko, a house hack could be a good option, and may be your only option.  At $750k purchase price, you are at 5x your gross income, which in most markets is very high. I know the coastal markets can qualify for mortgages at different multiples of income versus middle America.  

    I would just start talking to loan officers and explore both FHA and any other low down payment option. With a strong credit score and income, you will likely have little issues qualifying, and the issue could be the down payment. 5% of $750k is still 37,500. $150k/yr gross is roughly $100k take home in CA. Still very good, but saving the $37,500 + other costs means it could take a while, depending on your monthly spending.

    0Reply
  • Anthony Lacko
    OP
    Member since 2021 · 3 posts · 2 votes
    5y

    Thanks everyone! I was trying to save at least 10% + closing costs (so about $100k now). My lender from a few years ago gave me a nice deal on a 80/10/10 mortgage and I was planning on doing that again. My big concern with FHA is being overleveraged in case this really is a bubble of some kind. I guess I have to decide reasonably how long I would stay in the house to put a value on the bubble risk. Decisions, decisions!

    0Reply
  • Marco G.
    Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    5y

    @Anthony Lacko

    Just do the FHA and get yourself into a primary before you miss the train. Seriously. You can then save more and refi into a conventional if it makes sense. Don't over think it. There's no crash on the horizon. Inventory is so low that any modest increase will be soaked up with little to no impact to the market. Even if market somehow treads water you're borrowing at such a low cost and getting the benefit of living there.

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  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    5y

    @Anthony Lacko I’d recommend doing what @Dan Heuschele suggested without thinking too much about it. It is the best option for you, primary and investment all at once and your housing expenses would be lower than purchasing must a single family. Congrats on your upcoming little one...my wife and I went from a 4 bedroom house to a duplex when our little one was born, we didn’t need/want all the space. I don’t believe there is a bubble...but let’s assume there is a potential for one, do you want to sink a large down payment into a property that may lose 20%+ of its value or would you be better off only putting 3.5% down? You have higher risk and more to lose putting a large down payment.

    All that aside, if you purchase something that makes long term sense as an investment for you then what happens in the short term doesn’t matter.

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