Getting a Mortgage: Low income, but everything else is good?

Question

Hello Everyone!

I was wondering if anyone knows if its possible to get a mortgage loan like an FHA and getting preapproved for it with low income lets say 15k-25k a year or even less as an example, but having an excellent credit score, no debt, and a huge savings already (for the down payment). What I mean by no debt is, school loans all paid off, car loan paid off, and only thing are credit cards which all have close to 0 balance or under 10% total utilization rate on my report. The income is the only criteria thats lacking. How do lenders decide or operate in those circumstances where all other areas of your profile is good besides the income? What can you do to get around that? What if you're bringing in say about 2k a month income from a job and majority of that pay can go towards your mortgage payments because you are living at home rent free and you don't have much monthly living expenses on anything else. Given the information above, would a lender provide a mortgage loan to someone like this? Is there any way in the pre-approval process to plead your case in a written statement on why or how you would be able to pay for the mortgage? Can a mortgage underwriter override the numbers and approve you based on ability to pay it back without strictly looking at the income numbers? Any feedback would be much appreciated!

Chris Mason · Answer

REI friendly lenders can. Many bank swill not. Your challenges will be two-fold:

• Finding REI friendly lender local to you, in your state.
• Finding a deal good enough to make up for the fact that the math isn't as generous with owner occupied 2-4 unit properties as it is with pure investment properties. You need to get about $1334 in gross rental income for every $450 of PITI. So not just cashflow positive, but a cash flow MONSTER.

So you're not exactly in the vanilla/retail box.

Start with finding that lender. That'll be hard enough, but you're just getting started.

Next, go study how wholesalers find deals. Not how they close them, just how they find them. What is going to distinguish you from the average wholesaler is that your intent is to actually close on the purchase and buy the place -- that is a good thing. You aren't likely to find this $1334 gross rents for every $450 of PITI on the MLS, and I'm suggesting that you learn from the wholesalers because they also do not find their deals on the MLS.

When/if you do it, that is to say you find that 2-4 unit property that has $1333 in gross rents for every $430 in PITI, that's also in good enough condition for FHA financing, your next task is to make a thread on BP so we can all learn from the amazing coup you just pulled off.

I don't like to say things are impossible. Almost anything is possible. It's just a matter of what it will take. Barring a big fat pay raise at work, the above is my guess as to what it will take for you, made possible by your strong savings relative to your income, that you presumably lived frugally to achieve. Some people rise to challenges, others get scared.

Chris Mason · Answer

Both on mortgage as coborrowers ("co-signing" actually is not a thing), both on title as owners. Lowest credit score of all borrowers is the one that counts.

Richard C. · Answer

@Chris Mason

Very informative stuff. It can get discouraging when everything seems achievable (gaining knowledge, excellent credit score, savings) up until a certain criteria of a mortgage pre-approval (the income shown)  may be in the way of a first rental property. Looks like an uphill battle, but anything is possible. Appreciate the insight, Chris.

Chris Mason · Answer

Rental income is mortgage qualifying income.

Mindy Jensen · Answer

Richard C. , is there any opportunity to increase your income? Can you get a second job? $15-$25k isn't going to get you qualified to purchase very much.

Chris Mason · Answer

Yup, ratios now-a-days are fully blended, meaning that for the most part DTI math with you+cosigner is identical to you+spouse math.

Keep in mind that when your cosigner goes to buy a home or rental property themselves, their DTI in turn is quite likely to get hit with the full PITI on that property, depending on a few other factors.

Richard C. · Answer

@Mindy Jensen There's always a possibility to up the income whether its a second job, or doing more hours on the main job. Either way its going to take time for it to report on a tax return ( a whole year) and even if I upped the income somehow, I'll probably have to let it ride out for a good 2 whole years as well, as most lenders ask for the last two tax returns correct? Lastly, a problem is waiting that long when I would like to get started on investing asap and even if the income goes up it wouldn't be a huge amount. I'm thinking of co signing, or partner up with another investor, or sellers financing, etc as the only way to get my foot in the game. I'm assuming once I build up rental income that'll it'll open more doors up for loans that way. It's just the initial start thats hindering it.

@Brad Schultheiss I do plan to live in it, and rent the other units. My main focus is a multi family property.

Brad Schultheiss · Answer

It kinda sounds like you don't plan on living in the property.  Fha loans are for your primary residence so they will want you to move into the property and not just rent it out.  Are you buying a multi and living in it?  Or renting rooms out?

Richard C. · Answer

@Chris Mason The cosigner gets no part of ownership correct? Will the mortgage loan be on BOTH the primary and cosigners report? When blended, if they take income together do they also take credit score together as well? I wouldn't mind having a cosigner, but I would like to be the sole owner on everything, and just the cosigner there to get me over the hump to qualify for the mortgage and nothing else.

Getting a Mortgage: Low income, but everything else is good?

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