How much can I really be approved for?

Question

Hello,

This is my first post, and I'm here because I found the podcast off of Millennial Money Minutes. Before mapping out my actual plan, I need to know what I can actually be approved for, and I'm not sure which (if any) calculator online is most accurate.

Here is my situation:

My goal is to buy either a 3-bedroom single family, or 5-br+ multi-family in a neighborhood just outside of downtown Chicago. My girlfriend and I will live in one bedroom/unit (the house will be in my name only, but she will pay her share in rent). I will then rent out the remaining bedrooms/units.

I can get a quality 3br home for $3-400k, and rent each room for around $800/month (girlfriend and I will share a room). Is anyone able to give me a glimpse of what I can be approved for?

Gross pay: $8-11k/month (base of 60k, plus steady commission) 3yrs at current job

FICO: High 700s

Cash: $40,000

Debt: Student loan minimum $100/month (no credit card debt)

Thank you!

Nicholas Covington · Answer

Hello @Derek Luttrell there are plenty of other factors that can come into play.

Honestly there are are a few others things that would need to be provided and at that point you might as well just contact a Lender and ask them to just do a pre-approval. Can you figure it out without that? Sure, but as a MLO myself I would want your business after calculating this. :)

Try looking for a "what can I afford" calculator. They can give you just about the same ball park as someone else could with what you provided.

Nicholas Covington · Answer

@Derek Luttrell

I think at most you would be able to find convince a lender to consider any rental income to be used to cancel out your mortgage payment. They would more than likely not use it as qualifying income because they normally require a 2 year history of being a landlord. Now there are some exceptions I am sure and you would just have to ask the lender you plan to go with, but its normally a 2 year requirement.

But say your mortgage is 1600 per month and you are are raking in 1700 per month in renting out those two rooms, they could possibly cancel out the 1600 debt which would leave you in better financing terms. The extra 100 dollars would just not be able to be claimed as part of your income.

Alex Deacon · Answer

I misunderstood. I assumed it was a three unit apartment and you would live in one. I may not have read the post clearly. I don't think a bank will allow the proposed income to be used in your favor. you may have to qualify on your own without the proposed income. Check with your local mortgage expert.

best of Luck to you

Derek Luttrell · Answer

@Alex Deacon that is helpful. If it's a single 3br condo, will lenders care that I plan to generate $1600/month by renting the other two rooms? Perhaps I could have written letters of intent from roommates who agree to move in once I close on the condo?

Alex Deacon · Answer

@Derek Luttrell They will take into account a portion of the other income generated by the building that will be to your benifet. It would help to have the other units rented when you make the purchase.

Derek Luttrell · Answer

Hi @Nicholas Covington and @Alex Deacon, thank you for your reply.

I guess I am also wondering if lenders take into consideration the fact that you will be renting out all unoccupied space, or if it is a universal policy to only consider my income and my income alone, no matter who else is living there.  I also haven't found any calculators online that consider your cash reserves, or even your credit score.

With this, you're probably right in that it's best to have an actual lender plug in all of this information for me. The numbers all make sense for to significantly reduce my living expenses even on a 400k house with a $2500 all-in mortgage, but the goal is to make sure I could actually be approved for that.

Alex Deacon · Answer

@Derek Luttrell On the surface your situation looks very good. talk with your local mortgage professional and get yourself pre approved. Great credit, low debt, good income plus the income from the building will be factored into your regular income. Like I said on the surface you look really good so next step get a solid pre approval then go find yourself a good deal.

How much can I really be approved for?

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