Can this applicant qualify for a mortgage..?

[Nir]

Hi Everyone,

For someone who is not an employee, has no job but a good credit score (>700) is it probably still possible to qualify for say a $200K mortgage by putting a high % down, say 40%?

Same question regarding a person in the same situation who also owns a 4-plex?

The question is regarding qualifying based on high % down as oppose to based on employment or investment income.

Obviously, the exact number (%) depends on the individual situation/banker etc. but what % down (that is less than 100% ) should probably qualify most investors EVEN without a job? 25%, 35% or perhaps only 50% down?

THANKS.
Neil

 

[JSB]

If you`re looking to borrow money, everybody is going to worry about your income, because that shows your ability to repay the loan. If you put 50% down but have no way to pay pack the other 50%, then it`s not a very worthwhile risk.

If you`re looking at buying an investment property, then a downpayment along with documenation showing the actual rental income will probably work.

If you own a 4-plex, you could look at using it to secure a straight Home Equity Line of Credit. Banks will usually give you up to 80% of the value on a line. The benefit is the rates are lower (thought completely variable) and you can pay only interest if you choose or any amount of principle as well.

To sum up, I don`t think it`s the downpayment # that is the deciding factor, it`s the package you present to the bank. If you know somebody that works in the industry, talk to them and get their feedback. Having an insider`s opinion is invaluable.

 

[mortgageman]

Do you have pension income? Do you have investment income like dividends? Does the fourplex cashflow? Does the subject property cashflow? Do you have other debt obligations that are paid monthly?
The bank is going to want to know your ability to debt service the mortgage. All things being equal, the bigger the down payment the easier it will be to debt service since the mortgage will be smaller.

 

[Nir]

Thank you JSB and Jason,

However, isn’t it much less critical for the bank that you have employment income when you offer/agree to put down above certain percent, say 35%?

The reason is it minimizes the bank`s risk significantly because even in the worse case scenario - if you default on your mortgage, the bank is still not expected to lose money since they only need to recover 65% or less of the property value.

Thoughts?

Regards,
Neil

 

[JSB]

QUOTE (investmart @ Jul 30 2008, 11:47 PM) Thank you JSB and Jason,

However, isn`t it much less critical for the bank that you have employment income when you offer/agree to put down above certain percent, say 35%?

The reason is it minimizes the bank`s risk significantly because even in the worse case scenario - if you default on your mortgage, the bank is still not expected to lose money since they only need to recover 65% or less of the property value.

Thoughts?

Regards,
Neil
A higher downpayment will minimize the risk, sure, but if you can`t service the debt then they`ll walk away.

Think of it this way: when a bank gives you a mortgage, they`ve figured out all their costs, including profit, and they make their money by having you make the scheduled payments every month.

If you default, then their investment is `vacant`. They would get the property and be able to sell it, but that`s not their business, and that would add even more costs.

It`s in the bank`s best interest to set you up with a mortgage and satisfy themselves that you are able to make the payments.

As an aside, if you own a property free and clear, then the banks will usually give you a secured line of credit against it. For example, I can get a line for 80% of the value of my house, basically with no questions asked. The only commitment is interest repayment. Come to think of it, I`m not sure why that`s so much easier than a mortgage, but it is.

 

[nepoez]

Yeah.. can someone explain why it`s easier than a mortgage?

QUOTE (JSB @ Jul 31 2008, 09:29 AM) A higher downpayment will minimize the risk, sure, but if you can`t service the debt then they`ll walk away.

Think of it this way: when a bank gives you a mortgage, they`ve figured out all their costs, including profit, and they make their money by having you make the scheduled payments every month.

If you default, then their investment is `vacant`. They would get the property and be able to sell it, but that`s not their business, and that would add even more costs.

It`s in the bank`s best interest to set you up with a mortgage and satisfy themselves that you are able to make the payments.

As an aside, if you own a property free and clear, then the banks will usually give you a secured line of credit against it. For example, I can get a line for 80% of the value of my house, basically with no questions asked. The only commitment is interest repayment. Come to think of it, I`m not sure why that`s so much easier than a mortgage, but it is.

 

[Nir]

Good point JSB.

Perhaps it`s easier becasue banks know that statistically LOC default less (=lower risk).

However, please note apparently it is possible to get a mortgage with 35% down by some banks/ers even without a job, for the reasons mentioned above.

Regards,
Neil

 

[PeterKinchMortgageTeam]

QUOTE (investmart @ Jul 29 2008, 11:34 PM) Hi Everyone,

For someone who is not an employee, has no job but a good credit score (>700) is it probably still possible to qualify for say a $200K mortgage by putting a high % down, say 40%?

Same question regarding a person in the same situation who also owns a 4-plex?

The question is regarding qualifying based on high % down as oppose to based on employment or investment income.

Obviously, the exact number (%) depends on the individual situation/banker etc. but what % down (that is less than 100% ) should probably qualify most investors EVEN without a job? 25%, 35% or perhaps only 50% down?

THANKS.
Neil

There are lenders out there for just about every financial situation - its all a matter of how much you are willing to pay. Typically though, the more you have down the easier it is to get a mortgage but it really depends on the situation. If the client has strong liquid net worth, clean credit and 35% down or more, there are conventional lenders that will do it without verifiable income. If it is owner occupied, it is even easier and can usually be done with 20% to 25% down.

A line of credit is actually more risky for the bank as it is readvanceable - whatever is paid down, can be readvanced if the client wished. That being said, most lenders apply the same qualifing criteria to LOC`s as they do to mortgages - after all, a loan is a loan. For the most part, its the type of property that determines how easy it will be to get the loan. Owner occupied is always easier weather it be a mortgage or an LOC. Most clients with good credit would have little difficulty getting either arranged on their principal residence. If they are looking to arrange an LOC or mortgage on a rental, it gets a little tougher as different qualifing criteria are applied.

Hope that helps,

 

[Nir]

Thank you Peter,

Your input on the topic of mortgages is always appreciated!

If I understand you correctly, on a rental "If the client has strong liquid net worth, clean credit and 35% down or more, there are conventional lenders that will do it without verifiable income" although later you added "if they are looking to arrange ... mortgage on a rental, it gets a little tougher as different qualifying criteria are applied."?

Not that the 2 sentences contradict (difficult to get but possible ), just wanted to confirm.

Regards,
Neil

 

[PeterKinchMortgageTeam]

QUOTE (investmart @ Aug 1 2008, 12:09 PM) Thank you Peter,

Your input on the topic of mortgages is always appreciated!

If I understand you correctly, on a rental "If the client has strong liquid net worth, clean credit and 35% down or more, there are conventional lenders that will do it without verifiable income" although later you added "if they are looking to arrange ... mortgage on a rental, it gets a little tougher as different qualifying criteria are applied."?

Not that the 2 sentences contradict (difficult to get but possible ), just wanted to confirm.

Regards,
Neil

Yes, those applications are looked at on a case by case basis but with strong liquid net worth, clean credit and at least 35% down, there are a couple of conventional lenders out there. They`ll apply a make sense approach to the income - while it may not be verified with NOA`s etc, the client does have to have a source of income and a reasonable expectation of earnings.

Hope that helps,

 

[Nir]

Thank you Peter for the clarification.

Yes, it helps me understand my current and future mortgage options considering my plan - employment, net worth and rental income.

Regards,
Neil