Q; Am I ready for a loan?

Question,

Hi, I received an inheritance a few years ago and purchased a property with it in which I rent on a month to month basis for $1600. i have $55-$60k I'm willing to put down for a down payment. my question is: is it possible for me to qualify for a loan and use my income from my home to pay for mortgage and other fees? I have only been working since April 2014. is my only option to continue to work? thank you for reading.


Answer,

There's a lot of vagueness to this question; For instance, you don't specify how much of a home are you looking to buy or much of anything of your current situation, other than you have a large amounts of savings. Also, does the property you purchased with your inheritance also has a mortgage attached to it? I would think it does so basically I believe you are asking if you could pay for two mortgages based on solely the $1600 month rental income you receive because you want to leave your job ('is my only option to continue to work?')

Quick answer. No. 

Longer Answer; Why I say that - let's say you buy something small in a small town, like a condo that lists for $150,000. The minimum 5% down is $7500. Let's add in the extra expenses roughly and say with fees and such you pay $10,000. You now have a house with roughly a $142000 mortgage. Let's make your mortgage $700/monthly on a 25 year amortization. You have income of $1600 coming in (assuming there is no mortgage) leaving you with $900 a month revenue and your savings of roughly $45,000.

A lender would think positively on your original application only if you have your tenants under some type of long-term contract - not just a verbal month-to-month agreement. You would need to have to have them sign something. Your work history is short so the will want to see two years of taxable income so your rental income has to be declared as well. They will want to see at least a 3 month history of your savings in your bank account, or a letter from a trustee/lawyer declaring it to be an inheritance and not, say, from drug smuggling. Also, you give no indication of your credit score, which is evidence of you being able to go into debt and repay it on a convenient monthly schedule. Why should a lender believe you would pay them back that $142,000?

Now it sounds like you want to quit your job and live off that $1600 a month (which being month to month would be considered a 'high-risk' income; what do you do if the renters leave without notice?) while maintaining 2 houses. How long do you see this working out? Poverty line in Canada is around $20,000/yearly, which is where you would be without your job. You would have to find a way to pay for 2 sets of property taxes, 2 sets of repairs, 2 sets of utility bills (if your renters suddenly move out which they could as you don't have them under contract). This doesn't even include your own personal expenses, such as transportation, education, food, clothing, etc.

While $45,000 in savings sounds like a lot, truth is it's not that much of a safety cushion if you are not steadily replenishing it via employment.


I hope that helps to give you an idea where you stand and what lenders consider when approving mortgages; for more information give me a shout and I can go through this in better detail as you provide me better detail.

Buying a home with your parents?

(credit to reddit)

Questions from real people, just like you!

So my parents and I are tossing the Idea around of purchasing a whole duplex together, but are a little unsure of some of the details.

Like, what if I don't like their couch?

When it comes to a split mortgage, what is the required minimum down payment? I know in Alberta Canada where we're from, it would be a 5% minimum for me as a first time buyer, but they would required 20% as this would be there second home, so am I just lumped in with them?

If so, would it be possible to make the small down payment under my name via a gift from them and have them purchase half from me directly?

How is the mortgage rate calculated?

With my salary being lower, and with less credit history, would they just take our average, combine it, or just take the highest person into account?

Before anyone comes in and hassles me about a joint mortgage or minimum down payment and whatnot, please keep this all hypothetical. My mom just tossed the idea at me and it got me really curious about these factors. Thanks for the help!

Ok, let's break down this scenario and answer the questions piece by piece.

If it's in a blog, it must be legit.

No matter if a mortgage is split, shared, lumped, thrown at a wall and eaten by the dog the required minimum down payment is 5% of the sale price. To protect lenders against foreclosures or people just walking away from a property, that 5% shows that the property owners have some vested interest in keeping the house.

Yet, this is a duplex - so legally a duplex has 2 different titles (call'm right side and left side). Each side would have a separate deed. In your scenario, it sounds as if your parents are trying to purchase two houses and want you to share the risk in that purchase. Or, they could want you to start being a homeowner and so are planning on you living/renting in one side of the duplex while they live in the other. You should clarify what they are thinking long-term with the other side of the duplex.

Being a parent I can see the benefits of what they may be trying to do; they are starting you on the road to being a responsible home-owning adult, yet keeping you close enough to watch over. It's a lifestyle choice you need to make.

Will they like your choice of friends and/or roommates?

First-time home buyers receive a tax credit but have to plan on using the home as their primary residence within the year. You can find more information here.

They can gift you the 5% down payment, no problem. A simple gift letter stating so would do it. They must realize and state that this is a gift, not a loan. But they also have to have enough equity to have another down payment for the other side of the duplex.

The mortgage rate is calculated by basically taking your overall expenses and dividing it by your monthly income. You need to have a certain amount of disposable income that indicates you can afford the mortgage payments. A good rule of thumb is no more than 40% of your monthly income go to debt, leaving you 60% to cover the mortgage.

Lastly, if you decide to become an 'investor', meaning your parents add your name and income (assuming you are of legal age) to their mortgage application then the lender will review the strength of the application and then offer you a mortgage rate - that is why I suggest a broker - there are over 50 lenders that I have access to, all have their own rules and different guidelines and rates that a typical Big 6 bank doesn't offer.

My advice?

Ask more questions. I don't know your age, your lifestyle, your culture, your future plans. Consider the location and if you want your parents living right beside you. While they might mow your lawn and take out the garbage for you, they might (gasp) expect you to do it!

Also the recent drop in gas prices (as of Jan 2015) and Alberta's reliance on the industry doesn't bode well for real estate prices so you may want to wait a bit to see what happens.

On the plus side, the drive to do laundry would be short

As always, good luck. Take your time and be informed when you decide to become a home-owner. It's a large responsibility that can wait until you are truly ready. 

3 Great Questions for a Mortgage Broker...

3 Great Questions for Me, a certified Mortgage Broker


1) Can I ask you a question?

2) Is there anything interesting about being a mortgage broker?

3) I'm planning on buying a house with my BFF but we don't want to get married. Is that possible? What happens if we split, I mean, they decide to move out and get their own place?

Platonic BFF's since 1969