will i be able to get a loan?

Question

hello,

this is my first post, and i'm trying to learn as much as i can, but here is my situation:  i currently live in chicago where i work part time and rent an apartment.  my total bills are around $800 a month ($400 for rent plus utilities, $100 for phone/internet, $150 for health/car insurance, and $150 in student loans), i have about $1200 net income per month, i have no credit card debt, and a paid off vehicle.  i do have other miscellaneous expenses every month of course, such as gasoline, groceries, and dining out, but i'm pretty thrifty overall.  i am planning on finding full-time work in the near future so my income should increase by at least 50% as a conservative estimate.

i do not want to purchase a house in chicago, yet i want to live and work here for the time being.  i am interested in purchasing a single-family home in ohio where i am from and where i have family and friends.  the idea is to have the property to fix up or update as necessary and then rent out to a friend or friends, and maybe eventually move into it in the future if the job market in ohio recovers.

many homes i have been looking at are in the $40k range.  i have about $25k in the bank, so here's what i'm thinking:  get a mortgage loan for the $40k, and put about 20% down.  that will leave me with about $17k in the bank and should give me a manageable monthly mortgage payment.  i know i will also have homeowner's insurance, taxes, and utitlities to pay, but i think i can manage if i get someone into the house and renting it within a year or so.

now, is it even possible to get a $40k loan these days?  is my relatively low income a problem?  what of my expenses are included in the debt-income ratio many lenders look at (i believe my credit is in excellent shape)?  would the $25k i have in the bank and a 20% down payment be enough to convince a lender that i am a trustworthy borrower even with relatively low income?  how would you proceed with this investment/purchase?

thanks for your help and advice!

Nick J. · Answer

Jon, I remember seeing a few on here that were getting smaller loans like that but I can't remember who they are.

OP, Jon is right though, banks don't really make any money with the smaller loans. If I remembered who has had some luck, I'd post but I just can't remember.

OTOH, at those prices, seriously consider properties with owner financing. I know(sorry, can't remember again :oops: ) there are some guys right here on BP who own properties throughout the midwest who will owner finance at decent rates considering.

Buying from other investors who are selling owner financing, you'll be able to put less down(typically), enabling you to buy 2 properties instead of just 1.

Of course, all the CYA would be included like, make sure the #'s work blah blah blah blah. Its just another idea/option for ya considering the price range of property you're looking to buy.

Jon Holdman · Answer

So, your loan won't be $40K. If you can buy a house for $40K, non-owner occupied, you'll need to put about 25% down. That will make the loan about $30K. Keep in mind you'll have closing costs and if there's any rehab work you'll need to pay that, too. Payment's only about $180 on a 30 year loan, so you should be able to qualify, assuming you have good credit.

The challenge will be finding a bank that will do a small loan like this. If you have a background in this area, try the banks your family has been using.

The challenge will be finding a bank that will do a small loan like this.  If you have a background in this area, try the banks your family has been using.

Bill B · Answer

i apologize if i suggested something illegal or unethical.  i just figured if all the appropriate taxes were being paid it would be okay, at least before a tenant moved in, kind of like a contractor working out of state and paying all the proper income taxes for the place he works and the place he lives.  anyway, thanks again for all the replies and ill probably be back here for more advice in the future - ni the meantime ill look at smaller banks and/or credit unions and talk to some family in the area about local lenders they've worked with.  definitely want to do this the straightforward/honest/legal way!

Bill Gulley · Answer

IF IT WERE AN OWNER OCCUPIED, From what I saw the only loan you have that counts was the student loan, and it must be current. Even if you don't have a balance on the credit card a payment may be considered based on your average use of the card.If you owe nothing on it it could be closed and then there would be no assessment.

At 36% you're at 432, since there are no other debts (you loan is 10% so that takes you to 46%) they may allow that to bump up a bit to 40%.

Look to first time home buyers money in your area.  Might check Homepath REOs too, I think they have owner occupied deals similar to the low income loan programs. If you have a parent or relative, you can use gift money for your down/closing costs to help.

Like Jon said it will be a lowlaon amount, but P-I on 60K loan at 4% 30 year is 286.45 a month. 
Your top end depending on taxes and insurance. At 50K you might find it at 238.71, more in line. 3% down on that puts you at a sale price of $51,500 roughly. Talk to a lender or mortgage broker that does government loans and they may have something.

DO NOT LIE ABOUT IT! We don't like the F word....(Fraud)

Non-Owner, look for seller financing deals and check with local small banks to get it.Good luck

Nick J. · Answer

There is a F word for that type of thing. You won't find anyone here on BP suggesting you do that. Keep it on the up and up.

Bill B · Answer

thank you for your quick reply!  i really appreciate the information as i think more about making this idea a reality.  i think i would be comfortable with 15% down as i would still have about $15k in the bank for emergency savings or miscellaneous items.  surprisingly (or maybe not if you're familiar with the midwest real estate market), aside from some missing copper pipes a lot of these $30k-$40k homes are in nearly move-in conditionj.

would calling the house my main residence (getting a driver's license in ohio at that address, etc. yet just never being there) work to change the loan conditions and benefit me?  i realize there may be income tax implications as a result, but is an owner-occupied mortgage different and/or better in this circumstance?

i just think having a 3BR/1BA house in a city with friends and family for about $180 plus utilities is unbelievable and would be a great investment in this time of somewhat uncertainty, and i could move into it and live cheaper than renting a 1BR - how could i go wrong? seems foolish to let my $25k sit in a less than 1% interest savings account when it could be invested in a property.  any thoughts on that concept as well?

thanks

will i be able to get a loan?

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