Qualify for million dollar mortgage but about to get 30% paycut.

Buying & Selling Real Estate
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Qualify for million dollar mortgage but about to get 30% paycut.

Orlando Goodon
Member since 2018 · 125 posts · 21 votes

So I'm on the fence about buying a house now while I qualify for whatever I want. I was looking at duplex or Condo for rental income. My only goal is I want to at least make enough money on my own to live for free. I want to remove my cost housing costs. So right now, I'm paying $1400/month for  a roof over my head(rental). So I want to either:

Find a Duplex where the tenant pays the mortgage (completes my initial goal)
Find a Condo where maybe it cuts my housing costs down to $1000 or less (Would only be first step towards eventually living free)

I live alone with no dependents. I have enough saved to pay rent for a year, plus $15k or so for a deposit, but that leaves me with no money. With high unemployment, I worry about preserving my savings, unless I can convert them into an asset that pays me enough to not worry so much about loosing work.

Is there any sensible logic to getting approved for a larger mortgage than the bank would give you? Let's say you qualify for $500k but you had a something like say a job benefit where you could get a $700k mortgage. Would that be a blessing or a curse? Would you ever want to get a larger mortgage than the bank is offering you or do they max you out at a number that actually serves you financial interests? Does the bank today now know whats best for you?

There may be something I have not considered. Just wondering if I should make my move now.

BTW, looking within an hour of NYC. NJ most likely. I can get 100% (100% finance means any under million dollar duplex or Condo BUT hefty mortgage so DANGER if empty and I have to pay mortgage alone!) financing or 5% down (5% down means condo only).

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  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @Orlando Goodon

    You can’t get a $700k mortgage on a house if you’re only buying it for $500k. It doesn’t work like that.

    The bank won’t even let you mortgage the whole cost...you have to provide some down payment so they know you have “skin in the game”

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  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    I should say "usually" you can't get a mortgage for the whole cost. The only exception I'm aware of is VA loans

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  • Orlando Goodon
    OP
    Member since 2018 · 125 posts · 21 votes
    6y
    Originally posted by @Andrew B.:

    I should say "usually" you can't get a mortgage for the whole cost. The only exception I'm aware of is VA loans

    I have navy federal. They approved me for 1 million dollar mortgage. They say they will do 100% financing. Unless I heard them wrong. They dont do FHA anymore due to Covid+

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  • Orlando Goodon
    OP
    Member since 2018 · 125 posts · 21 votes
    6y
    Based on your reply, I think I was not clear in my question. This is what I'm saying:

    1) If I apply now, I'll get approved for 1 million mortgage (was already approved early this year with much lower credit score than I have now)
    2) If I apply in a few months, due to income reduction, I'll get approved for much less.
    3) So, is there any sensible advantage to applying now while I still qualify for a larger mortgage?

    In other words, as a person only interested in rental income, would you ever WANT to be approved for more than the bank would give you? So imagine you have Jedi mind trick skills but can only use it once and on the loan officer. Would it ever make sense to after then say "Approved for $500k", you then say "Yes, you approved me for $700k!" and then they say "Yes, $700k".

    Bank approves based on risk to them and therefore you as well as if you can't pay it hurts you too. So I guess I'm really asking if banks are too strict now as for the amount they approve for relative to income or is it just right? If you could talk your bank into approving you for a 30% more expensive home, would you or would you prefer to stick with thier level of risk asceptance?



    Originally posted by @Andrew B.:

    @Orlando Goodon

    You can’t get a $700k mortgage on a house if you’re only buying it for $500k. It doesn’t work like that.

    The bank won’t even let you mortgage the whole cost...you have to provide some down payment so they know you have “skin in the game”

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  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    6y
    I think I understand your question better now. One thing to keep in mind, is that pre-approval is semi-meaningless at the end of the day because the bank is very thorough, and rechecks everything before closing. If you get pre-approved now for $1m and try to buy a house for $1m, but 1 week before closing you no longer qualify for that mortgage, the bank will pull out. Also, if you know your income is about to drop, and don't share that information with the bank, it's probably going to be considered mortgage fraud (which I think is a federal offense) Hopefully that answered your question.
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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    Buy what you can afford.  Look for a place where the numbers make sense.  Buying a duplex where you can rent out half and live in the other half is a good option.  You may not be able to find a place where the rent from one half covers the entire mortgage, but even if you get something that reduces your costs while you live there, you are doing good.

    Start by running numbers on places in different price points and then look at how much it would cost you on a monthly basis.

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  • Orlando Goodon
    OP
    Member since 2018 · 125 posts · 21 votes
    6y

    Thank you so much for the feedback! I will look for some duplexes.

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  • Orlando Goodon
    OP
    Member since 2018 · 125 posts · 21 votes
    6y

    Hey I was thinking there IS a valid reason to try to get mortgate now. I have not used a lot of credit so my score is low. I been living cash lifestyle. So 2 years ago i realized I needed to establish more credit (had not had loan in years). I got 4 credit cards and have been working my way up. 660 now. So my higher income allows me to qualify better. They say, credit low but income is very high and I think I lose that advantage later if I get 30% pay cut.

    So I would not be trying to get something I can't afford but effectively lowering their credit requirements. Credit standards are much higher post covid. I should not be penalized for simply avoiding debt for 80% of my life. However banks just follow their models. I'm not a model. I'm a human with my own unique circumstances.

    Keep in mind I would only buy a house where with a tenant I'm paying about the same I've been paying since a long time and even paid while I was out of work on unemployment. Basically I want mortgages close to my rent now for one bedroom. With tenant, it should be no more than about ~$300 for me to live there. Ideally I make $300+ a month, rather than cost me that.

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  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    6y
    Originally posted by @Orlando Goodon:

    Hey I was thinking there IS a valid reason to try to get mortgate now. I have not used a lot of credit so my score is low. I been living cash lifestyle. So 2 years ago i realized I needed to establish more credit (had not had loan in years). I got 4 credit cards and have been working my way up. 660 now. So my higher income allows me to qualify better. They say, credit low but income is very high and I think I lose that advantage later if I get 30% pay cut.

    So I would not be trying to get something I can't afford but effectively lowering their credit requirements. Credit standards are much higher post covid. I should not be penalized for simply avoiding debt for 80% of my life. However banks just follow their models. I'm not a model. I'm a human with my own unique circumstances.

    Keep in mind I would only buy a house where with a tenant I'm paying about the same I've been paying since a long time and even paid while I was out of work on unemployment. Basically I want mortgages close to my rent now for one bedroom. With tenant, it should be no more than about ~$300 for me to live there. Ideally I make $300+ a month, rather than cost me that.


    You are making this too complicated. Find a house that you will be able to afford (and will cash flow) on the day that you close on it. Disclose all necessary information to the bank. If you know for a fact you are getting a 30% pay-cut, its fraud to hide that from the bank.
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