Obtaining a fixed loan on minimum wage? Can it be done?

Question

I'm 23 years old and currently living with my parents working odd jobs, have an associates degree (in liberal studies.. yay), 0 debt and perfect credit. I've always wanted to get involved in real estate and would like to try making a living as a landlord. It seems to be a desirable path, especially with long-term loan rates being 3-4%, and with the inflation of the dollar it seems like a good idea to take on fixed, manageable debt..

Anyway, I have about $15k in cash saved and would like to travel and look up different cities that seem to have a healthy pulse to them, currently looking at Indianapolis as an example. What I want to know is, if I move there and get myself an established job history, with a 20% down payment and a proven income of ~$1200/mo, is it likely I could be approved for a 15yr loan?

Keep in mind I don't want to work minimum wage forever, my thinking is if the economy tanks (who knows what's going to happen in the next few decades - the length my loan would be) then I'll be able to cover payments no matter what, because minimum wage jobs are the least scarce jobs out there. If I can do that and establish myself with real estate and start generating cash flow, THEN I'd be comfortable with more traditional methods of leverage, however to start out I really don't want there to be any snags.

I'm looking at a place like this:

http://www.realtor.com/realestateandhomes-detail/6...

Looks like a B average neighborhood?

Assume the location and everything else is ideal, just for example.. if Realtor.com's numbers are accurate then a 15yr loan (they include prop. tax, insurance, and HOA) would be $524 a month. Min wage nets at least $1000 per month, this seems enough to cover the loan as well as utilities and other things. I don't plan on owning a car and already live very frugally/boring. Naturally I'd also be renting the house out, but I'd like to be able to cover all costs myself to keep this plan concrete.

Any thoughts? Am I crazy for wanting to do this? I realize it's a long-term commitment at first and I'm okay with that. I'd also be working at getting a better job (thinking of taking on an apprenticeship), I'm just curious if this min. wage theory can work and would like to establish myself in a town I like first, rather than having my career dictate where I live. Any criticisms would be very appreciated. Thank you!

Account Closed · Answer

Actually, I do not think minimum wage in this case is a problem.  The OP has savings for both a down and for reserves.  He has no debt and very low transportation costs.  How many Boomer's kids can claim that.  A $75K house with $5K for an FHA downpayment/closing costs and 5% interest is a $380 housing payment, plus insurance and taxes.  That is a low housing cost and he has to live somewhere.  He's young and can can take in roommates or boarders.

His main issue that needs attention asap is verifiable and reported income.  He can fix that in two years no problem.  IMO his low income is not at issue.  He needs to start reporting W-2 or Schedule C income asap.

Account Closed · Answer

Yup.  There's numbers and there's numbers.  The numbers you tell the government when it comes tax time.  And then the number you report when you want an extension of credit.  You need to get those two number in line.  No lender will ignore that your income is under the table so straighten that out asap.  Report the income on a Schedule C.  Pay self employment tax on that income.  That is the price of admission to borrowing.

The majority of the US population is NOT getting paid under the table.  There are many illegal immigrants who do so, but that is not the majority by any stretch.

Account Closed · Answer

If you can show a good job history with pay stubs, you'll probably qualify for an FHA first time homebuyer loan where you only need 3-5% down.  If you can find a qualifying rural property, you may be able to qualify for a USDA loan with no downpayment.  That way you can save your capital for improvements and for future downpayments/purchases.  You'd need to live in the property though.  I suggest you make your first purchase in your local area.  Take advantage of the FHA loans and low down payments while the program still exists.  I'd try to bump up your income though, and get a job that provide health insurance. IMO health care costs will eventually make it's way into loan apps as monthly debt service since insurance or a fine is now required by federal law.  Lenders won't be able to ignore health costs as monthly debt for individuals paying their own premiums.  Just my opinion here.

Account Closed · Answer

I am actually happy to hear that the FHA is at least applying some standards to loan applications. I don't mean to be harsh, but someone on minimum wage has no business buying a house. There are a lot more expenses than just the PITI and downpayment. WIthout reserves you will end up losing the house and if foreclosed taxpayers like myself will eventually eat the difference. Go earn some real money, live frugally, save some of that money and then buy property. It will work out a lot better in the end.

John Bachmann · Answer

Thanks for the replies guys. @Chuck B. yeah, a multifamily property is what I'm after, I want to start out with a place to live initially and living next to my tenants would be great. Noise and stuff doesn't really bother me and it'd be a great intro to the business. Hardest part is finding a place that's affordable and isn't on the way to becoming the next Detroit.

Barbara G. sadly my father refuses to cosign with me because he doesn't want legal responsibility, might work with my mother though. Thankfully they're both in good financial standing. Also embarrassing to admit but even if I reported my under the table wages it still wouldn't be a reliable enough history to convince a loan officer.

So I need to secure a good job and achieve good pay/save more. What I want to know is if these low interest rates will last, call it paranoia but I'm not sure how much longer the $USD will remain dominant; i want to get secured in real assets ASAP (but not bury myself in debt i can't repay, it's a double edged sword). I'm gonna post another thread about that.

Ron P. · Answer

I just finished doing my taxes using turbotax.  At some point it asked me if I had insurance, I said yes, that was the end of it.  Seems to me the law doesn't have teeth, just check the yes box on your return and avoid the penalty, no enforcement that I can tell.  Just another case of the honest paying for the dishonest folks.  I do have insurance btw so it was a true statement.

Chuck B. · Answer

I agree with Kristine Marie Poe your first purchase should absolutely be a duplex.  You can live in half and rent the other half out to help pay some or occasionally even all of your monthly mortgage.  You can still buy $75K (or less) duplexes in the Midwest.

Good luck!

John Bachmann · Answer

Thanks for all the advice! I've read up on FHA loans and there seem to be some snags. Taken from here: http://www.zillow.com/mortgage-rates/finding-the-r...

• Must have a steady employment history or worked for the same employer for the past two years

My jobs are currently under-the-table.. so no W2's or any official documentation to report.. this seems like a deal-breaker, but on the same token, if I do move to a place I like and commit 2 years in the local scene I would probably be getting more than min. wage by then.

• Your front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, home insurance) needs to be less than 31 percent of your gross income, typically. You may be able to get approved with as high a percentage as 46.99 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.

Looks like most lenders want your payments to be ~30% of your income, doing this on minimum wage would be more like 50-60%. Can anyone comment on this? Would rental income be an acceptable part of the gross income?

Thanks for the help! I'm really curious if homeownership is a realistic goal for people who can work but are disadvantaged from getting a better job. College is hardly affordable for anyone these days, and student-loan debt can really cripple you. I would probably try for an apprenticeship myself. But the fact is, the job market is getting squeezed and the economy is getting iffy.. just wondering if there are any failsafe plans left for the average person hoping to achieve stability..

Kristine Marie Poe, I completely forgot health insurance is mandatory now, although I'm covered by my parents until I'm 26. I'm confused by what you said though, are you saying if I wasn't insured it'd be unlikely to be approved for a loan? I'm in good health but I understand why that'd be the case.

Thanks everyone!

Barbara G. · Answer

:

Thanks for all the advice! I've read up on FHA loans and there seem to be some snags. Taken from here: http://www.zillow.com/mortgage-rates/finding-the-r...

• Must have a steady employment history

• Your front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, home insurance) needs to be less than 31 percent of your gross income, typically. You may be able to get approved with as high a percentage as 46.99 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
• ----------------------------------------------------------------John
• I believe rental income could be included in your formula.  If you find a duplex or  a triplex that is occupied with tenants paying rent then perhaps   you could make a case that a bank under FHA guidelines could approve you if including your tenants rent as income would put you in the 30% of your income or up to 46%.  IF I had a low income I would go around to different lending sources and see what kind of FHA loan I could qualify for and try to get some pre approval.  I would ask them if they would consider  the existing tenants rent as part of my income so I could qualify perhaps for a low priced entry level property.

I would touch base with many lening institutions and see if one of them might do this for me.  Does FHA allow co signer and would your parents be able to do that for you??

Account Closed · Answer

My point is that insurance premiums for those that pay for their own policies will start to effect people's DTI, no different from credit card debt.  It's no longer an optional expense as it's required by law for those that don't have employers who pay or who are no longer under 26 and on their parent's plan.

Obtaining a fixed loan on minimum wage? Can it be done?

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