Would I be able to obtain a mortgage loan?

Question

I am 21 years old. I make 32k a year. I have been at the same company for almost 2 years. I have a FICO score of 745. I have 3 credit cards all in good standing. Just leased a car 3 months ago, payment is 238 a month. I currently live at home with parents right now. I really want to buy a condo to flip. I live in Southern CA and I am trying to spend around 100k. Do you think I would be approved for a mortgage? If not, what steps can I take to be approved in the near future? Any advice for someone starting out?

Bill Gulley · Answer

Sam, that is fantastic that you have good credit starting out. Your debt to income ratio will determine what you qualify for, that varies by loan program. I'd suggest you begin in RE with your own home first, it's the easiest loan to get in RE. Or a good rental, but your own home will get you moving quicker, after a year you could rent it. Here's the thing, loans to flip houses are not the better mortgages that go to the secondary market, they are portfolio loans, those held for a short time by a bank or other lender. These are commercial loans and lenders consider the borrower's ability to manage the business, in this case, ability and experience in flipping houses. Being the first isn't impossible, but more difficult.Secondly, the ability to flip by your lack of management under the circumstances means the property should be in fairly good condition, no real rehab work involved, and paint and market types.However, on that point, if you were to contract with a general contractor for the rehab work, the concern in that part of the flip is taken care of......but it needs to show the ability to profit too. Getting away from banks, using a hard money lender is the way many begin. The HML looks primarily at the loan to value, LTV and the equity you have from your down payment when you buy. They will also loan as construction funds might be required (as does a bank). They don't look so much to credit or income but to the skin in the game, your equity. With experience, some may lend 100% of a deal, but they would rather be at 60-70% LTV. Points and rates are high with the HML.If you have a contract to sell (as in wholesaling flipping a deal at closing) Transactional lenders will loan what ever the deal requires at settlement as they are immediately repaid by the next sale transaction.Another point, in lending, a lender first looks at the type of loan requested and then payment histories of those types of loans. A car dealer/lender wants to know how you paid car loans, a RE lender looks first to past RE loans. Everyone has to get their first loan, not that hard for a residential mortgage, but it is harder getting your first commercial loan without ever having another RE loan. Your ability to borrow commercially depends to on the deal, if the lender sees that it's a slam dunk, no difficult rehab issues, buying at a good price, market shows an upside to profit, you can carry the property costs and the payment and the expected marketing time is good, then some banks will lend to someone who can fog a mirror as they say at 75-80% LTV. They will also want to see cash reserves. That's the short version, best just to go into your bank and start asking questions and get pre-qualified, if they say you're good to shop, go shop, contract subject to financing, then go back for the loan. :)

Scot Howat · Answer

I think you probably could. Just make sure you've got at least 2 months reserves (new mortgage payment + taxes + hazard insurance x 2). If you don't have the money, you can always get a gift, typically if you have at least 5% of your own funds in the mix. And if you don't even have that, then you should be able to get a gift for the entire downpayment (as long as your loan to value is 80% or less).

Jeff Trevarthen · Answer

It will be tough to get a mortgage at this point @Sam Regan , but not impossible. As @Bill G. mentioned you might want to buy a primary residence first and then rent it out after a year. At $32k per year, that's $2666 per month. Subtract your car payment of 238 per month and that leaves $2428. If you have zero other debt (no other loans, all credit cards are paid to zero every month, etc.) then you're looking at a maximum mortgage payment of around $1019 which will have to include property taxes, hazard insurance, mortgage insurance (maybe) and any HOA fees. You can buy a primary residence with as little as 3-3.5% down, but often times you'll need reserves. I would recommend you wait until you've been employed for 2 years. I would also try to figure out how to either put more money down or make more income. Good luck!