Qualifying for a mortgage with large down-payment and low income.

3 Replies

Hi BP! 

I've been a long time lurker and have finally come out of my shell for some advice.

I'm looking to buy my first primary residence for my fiancee and I to live in for the next 5-7 years (minimum). We're sort of in a unique situation here and we're trying to weigh out every option to make sure we go with one that makes the most sense for us.

Both my fiancee and I are graduate students, and will not have a significant source of income for another 4 years. Fortunately, we will NOT be graduating with any education-related debt. Earlier this year I sold an online company I started and have gained some capital in the process. We've always been renters, but are now looking to buy our first home. 

Our price range is between $280,000-$300,000. I want to put 50-60% as a down payment and finance the rest. The problem is there's barely any income. The only source of income we have is a rental property I own that is paid off and nets $950/m in revenue. It was recently assessed at $140,000. We both have credit in the mid 700s. We are also fortunate to have our parents chip in whenever they can, which has been a huge support for us. 

I'm looking for a way to finance ~$100,000 for our new home. Some options I came across were:

  • Conventional Mortgage
  • Seller Finance
  • Private Loan
  • HELOC on my rental property
  • Have a parent co-sign 
  • Wait till we have income 

We are paying $1550/month in rent. In 5 years, we'd be well over $100k in rent assuming price increases. Ultimately, would it make sense to buy a home this way or wait until we have income?

Thanks for hearing me out BP! Looking forward to reading some of your advice.

- Stephen 

@Stephen V.  

I would suggest you get a co-signer or wait until you increase your income. (probably more so on the latter side). You wouldn't want to put all of your down payment cash into the property because you'll then be "cash poor". Seller financing, private / HM / HELOCs would be an interesting way to go however you'd still want to make sure you have your back up plans in the event an unexpected "emergency" happens. If you have cash handy for a big down payment but lack the income to support getting traditional financing then just increase your income in the meantime. Weigh your opportunity costs of what your cash can do for you now vs long term.

Wait till you increase your income. In the mean time live more frugally, cut all your expenses, move to a less expensive apartment.

You do not want any cash sitting dead in a property. Your rental property, being paid off and having equity of $140K, is costing you $1166/month in lost income. This is due to the opportunity value of your cash. The property itself is earning a negative return and is a liability. You would make more money selling and investing the cash in a income fund. At the very lease refinance and pull out as much equity as possible to reinvest.

Well, considering there isn't enough income to qualify for the $100,000 mortgage @Stephen V. wants for the new residence, I don't see how he's supposed to magically have enough income to qualify for a $100,000+ cash-out refi.... smh

That aside, if you have no debt, it doesn't take much income to qualify for the $100,000 mortgage you seek. Roughly, you should be able to borrow at 45% DTI or so. If your rental property has been on your tax returns, preferably the last two tax returns, you should be able to count that income.

Is there truly NO income available to you? Even a student/campus job at $10/hour for 10 hours a week is approx. $430 a month. If you both get one of those, you'll be approaching $1800 a month in total income. That should qualify you, if there are no other debts working against you.

Can you devote 10 hours a week as a library monitor to get the house you want? They'd love to have a responsible grad student instead of a freshman working for them.

If you're in Miami, you might have high HOA fees to consider, which may require a higher income. So take that into account.

Find a good mortgage broker to work through this with you. Good luck!

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