# Mortgage with little or no income



## james1989 (Sep 29, 2011)

Hypothetical here - 

An individual has $50,000 cash and is attending university.He is earning < $1,000/month. The housing market takes a major downturn and this individual wishes to purchase a unit costing anywhere from $100,000 -$ 200,000 putting about $15,000 down. 

Will the bank give a mortgage to this individual? 

Does it help that he has 30,000 in the bank or do they not consider this? 

I'm assuming it matters whether the individual plans to live in the unit or not... to what extent and how does this matter ? 

Could you get someone with larger assets to co-sign the mortgage? 

Thanks, 

James


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## Four Pillars (Apr 5, 2009)

Hypothetically, this person should check with their bank to find out.


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## the-royal-mail (Dec 11, 2009)

University students should not be involved with RE. That is a volatile time of life. The focus needs to be on understanding the material they are paying to learn. Save the money to graduate debt free - plus it will be needed to get started in life, move to new town etc. You simply do not know where you will end up after graduation. Tying yourself down to such an asset is a very bad idea.

Again, this is the time to SELL if you want to make money in RE. This is a very bad time to buy.


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## Just a Guy (Mar 27, 2012)

Four pillars is right, you have to ask a bank. Of course they will probably say no, but that doesn't always mean no. You could ask a different bank, or even the same bank, different person, and get a different answer. A mortgage broker may help...

As for Royal's answer, you should also bear that in mind, however, like any investment, there are always a few good deals around in any market. If you can find one great, but lately it's been tough. I waited several years to find some good deals, but have been finding a few lately...it depends on which market you're looking in (there is RE outside toronto and Vancouver).

Of course, there is always a mortgage to be found as well, but make sure it makes sense. Getting a 10% mortgage with today's rates may be a good sign that one shouldn't be getting into real estate.


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## Chris L (Nov 16, 2011)

They would need to prove they could carry the cost via income. This could be done via signed lease (to friends, etc.). The purchase would be a speculative move, however. Not recommended in today's market. If a downturn does materialize, it could be years before a sale is possible.


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## crazyjackcsa (Aug 8, 2010)

Give your head a shake. Hypothetically. If you want to carry that kind of mortgage, you'll need to show about 40k of income.
You don't want to live it in? Really? Speculate much?


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## marina628 (Dec 14, 2010)

You will probably get a $70,000 mortgage on your own assuming no debts .


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## bigbadbull (May 25, 2012)

I agree the market right now may not be the cheapest but I'm assuming this person is looking to buy an income property which they plan to rent out to their university pals (pretty darn good idea), depending on which year this person is in I'd say they know enough students at their school to keep that rent coming in for the next couple years easy. . . that said, if you get approved my wishes with be with you, just make sure you have the cash flow to cover all those hidden RE fees. .


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## crazyjackcsa (Aug 8, 2010)

Pretty terrible idea. He's going to juggle school and an investment property? An investment property that deals with students, and he isn't going to live there? Brutal plan. Specuvesting at its worst.


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## bigbadbull (May 25, 2012)

how can you judge this person without even knowing their abilities? I'm assuming their max age is ~22 and to have accummulated $50K by then is quite an accomplishment, it also implies that they may have a decent work ethic and at least half a brain (more than most people could say)


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## marina628 (Dec 14, 2010)

Maybe not their money either but I believe you should never count on others to co sign on a big purchase like Real Estate.He can rent a house then move a few students in so he can live for free and get same return with little risk.


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## the-royal-mail (Dec 11, 2009)

I agree with crazyjacksca. 22 year old uni students wanting to specuvest with little or no income? C'mon. Renting to your university buddies? C'mon. There are more holes in this idea than swiss cheese.

Stay in school and ignore the water cooler talk about RE being a sure bet.


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## james1989 (Sep 29, 2011)

Normally this forum is pretty good but the presumptuousness in this thread is pretty amazing..... 

@ royal - mail - if you took the 2 seconds needed to read my post and not skim it ( and jump to conclusions ) you would have seen that I'm in total agreement with you. In my original hypothetical I said - 

"The housing market takes a major downturn and this individual wishes to purchase a unit " .

I have no intention of purchasing any real-estate unless we see something of a 15% + correction. Even then, it would probably take closer to a 20% downturn to get me interested.

I also love how the forum constructed a plan/facts for me that has no basis on anything I mentioned in my post and then starts to critique it...... I'm 22, I plan to rent to Uni buddies, etc..... pretty funny. 

Thank you to those that gave straight forward advice.


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## marina628 (Dec 14, 2010)

James
I have found the 'what can i afford?' calculator to be right on the money with their borrowing criteria so that may be helpful for you to play around with.If you can find a way to do it on your own that is the better way to go and I wouldn't buy unless you know 100% that you can afford to keep it without the income so protect that savings account.


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## HaroldCrump (Jun 10, 2009)

So all this is hypothetical?
And what makes you think there will be a 20%+ correction?

Swiss cheese is sooo tasty


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## james1989 (Sep 29, 2011)

HaroldCrump said:


> So all this is hypothetical?
> And what makes you think there will be a 20%+ correction?
> 
> Swiss cheese is sooo tasty


Yes, hypothetical in the sense that there is a good chance this plan will never materialize, and if it does, it wont be so for another couple years. 

Obviously with these things ( forecasting real-estate corrections ) we can never be certain. I just think that there is a good probability.


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## dougbos (Jun 4, 2012)

With an annual income of less than $12000, you would not be approved for a mortgage. You could get a co-signer but they would have to have a fairly high income and an excellent credit report.


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## Potato (Apr 3, 2009)

In this environment, I'm sure that with an regressive enough mortgage broker and a potential co-signer, you could find a stated income mortgage and get it. It wouldn't necessarily be a _good _idea, and the rate would likely be higher, but it could likely be done.

However, the perverse reality is that after a drop like in your scenario, the underwriting standards will get tighter, and the no-doc alternate lenders will all but vanish.


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## james1989 (Sep 29, 2011)

Potato said:


> In this environment, I'm sure that with an regressive enough mortgage broker and a potential co-signer, you could find a stated income mortgage and get it. It wouldn't necessarily be a _good _idea, and the rate would likely be higher, but it could likely be done.
> 
> However, the perverse reality is that after a drop like in your scenario, the underwriting standards will get tighter, and the no-doc alternate lenders will all but vanish.


Interesting... By "perverse" you are referring to the irony of lending standards tightening as risk actually decreases?


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## Four Pillars (Apr 5, 2009)

james1989 said:


> @ royal - mail - if you took the 2 seconds needed to read my post and not skim it ( and jump to conclusions )


Unfortunately, that is what trolls do. They pop in, spew some unrelated nonsense and then leave as quickly as they came.


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## Rusty O'Toole (Feb 1, 2012)

To answer the original question. If the bank won't go for the deal try a mortgage broker. If that doesn't work you could still swing the deal on a rent to own, lease option basis. Or maybe the vendor will hold a mortgage, or maybe you can find a partner who has a job and a credit rating.

Now we are getting into creative real estate deal making which is a field all its own.

All I can say is I have been involved in real estate investing since the early seventies and have made several no money down deals, the first one before any of the nothing down real estate books and courses was written.

I can also say there is no reason to believe real estate will ever be much cheaper than it is right now. Those who looked at the US debacle and waited for Canada to follow suit, including myself, were wrong. 

This does not include Vancouver and Toronto which are in a world of their own, rapidly approaching the orbit of Jupiter.


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## Causalien (Apr 4, 2009)

I've actually seen a version of this work out. Rich heiress has her parents buy the place and renovate. Heiress lives in it and pay parents the variable interest rate. Heiress gets rent from university buddies (who are mostly rich heiresses)

She was being groomed by their parents to take over the business.

But I doubt you can get a mortgage. Income is valued more than net worth. Maybe if you are a Multi millionaire.


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## bigbadbull (May 25, 2012)

Rusty O'Toole said:


> Now we are getting into creative real estate deal making which is a field all its own.


always fun :tongue-new:


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## Charlie (May 20, 2011)

You can do it with a co-signer -- then it's based on their income.....and it's their risk. 

Doubtful you could do it on your own with no income. Those types of loans are much more rare these days. When equity based lending is avail, you'd need a lot more than the 7.5% to 15% down you're proposing -- probably at min 35% and more likely higher. Your rate would also be significantly higher than what you get on a traditional mortgage. The equity lenders who advertise on the radio ("if you own your house we'll lend you money") can charge close to 20% by the time you factor in all the fees!

Your (and your co-signers!) call on whether it's a good investment decision.


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## james1989 (Sep 29, 2011)

Some good advice so far. 

Have a few things to think about now.

Thanks everyone.


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## james1989 (Sep 29, 2011)

Rusty O'Toole said:


> I can also say there is no reason to believe real estate will ever be much cheaper than it is right now. Those who looked at the US debacle and waited for Canada to follow suit, including myself, were wrong.
> 
> This does not include Vancouver and Toronto which are in a world of their own, rapidly approaching the orbit of Jupiter.


Interesting. 

Do you care to expand at all? What exactly has caused you to change your mind about the future of real-estate?


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## Rusty O'Toole (Feb 1, 2012)

james1989 said:


> Interesting.
> 
> Do you care to expand at all? What exactly has caused you to change your mind about the future of real-estate?


With pleasure. I have been investing in rental real estate since the early seventies. In 2007 and 2008 I freaked out because of the real estate collapse in the US. I believed Canada would soon follow suit. I sold some properties and got into cash. The collapse never happened. Real estate dipped about 10%, then recovered and went on to gain for the last 4 years. The dip lasted about 2 months.

Since then I have learned a great deal about the US debacle. It was because of a whole series of scams that went from the humblest borrower to the biggest banks in America.

The Canadian system is totally different. We were never in danger of an American style collapse.

Furthermore, every country in the world seems to be following an inflationary policy no matter how disastrous. For the future I see a much stronger chance of inflation than deflation.

Since 2010 I have bought fresh properties to replace the ones I sold. I wish I could have the old ones back but they are up 25% or 30% since then.

For me this is not a get rich quick scheme or a fast flip scheme. I can't tell what will happen next year but I am confident you will do very well on a 10 or 20 year hold, and if you can lock in today's low interest rates you have nothing to lose.


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## james1989 (Sep 29, 2011)

Rusty O'Toole said:


> With pleasure. I have been investing in rental real estate since the early seventies. In 2007 and 2008 I freaked out because of the real estate collapse in the US. I believed Canada would soon follow suit. I sold some properties and got into cash. The collapse never happened. Real estate dipped about 10%, then recovered and went on to gain for the last 4 years. The dip lasted about 2 months.
> 
> Since then I have learned a great deal about the US debacle. It was because of a whole series of scams that went from the humblest borrower to the biggest banks in America.
> 
> ...



Thanks, 

Government following an inflationary policy does concern me. I do think that over the next 10 years we will see numerous asset bubbles because of it. I don't think that you can keep interest rates at essentially zero for prolonged periods of time with some sort of consequence.... I subscribe to Austrian economics and its theory of the business cycle; I think that we can have inflation but perhaps not total, widespread inflation.ie - asset bubbles. The money goes from one asset class to another - .com, RE, etc.... In this sense, although I would agree with you on inflation, I still think a RE correction is possible and likely. 

The one big obvious thing that makes me think there will be a substantial real-estate correction is simply the current crowd psychology; everyone thinks that real-estate is a sure thing. Anyone I talk to and mention a possible correction tells me that I'm crazy and that it's going no where but up. Real-estate fever is everywhere and everyone likes to think that they are a RE investor. Look on T.V... When I see this sort of group mentality it's hard not to think that there has to be some sort of correction. Also, with China now undoubtedly slowing, and it's influence on the Canadian market, I see a catalyst for a correction.


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## Just a Guy (Mar 27, 2012)

If you are worried about inflation, then real estate it a great solution. Let me give you a ridiculous example to illustrate my point...it's numbers are highly inflated to show the point, the concept isn't ridiculous.

Say I have $10,000 today I've got two options 1 keep it, 2 buy a property for $100,000 (10% down).

Hyper inflation hits. Weimar republic type. Money and pay go through the roof...

Had you kept your $10,000 it's now worthless...

You can pay off your mortgage with your daily pay...so do it.

The value of your property stays relatively close in buying power to where it was before.

The government issues a new currency, life returns to normal, you paid off your property with a days pay, but it is worth $100,000 in the new currency...whereas your original $10,000 is a distant memory.

Of course, in reality, the banks would probably fail, call in their loans early, etc...

But if inflation does hit, you'll pay less for your property relative to it's value in purchasing power.


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## Rusty O'Toole (Feb 1, 2012)

Just a Guy said:


> If you are worried about inflation, then real estate it a great solution. Let me give you a ridiculous example to illustrate my point...it's numbers are highly inflated to show the point, the concept isn't ridiculous.
> 
> Say I have $10,000 today I've got two options 1 keep it, 2 buy a property for $100,000 (10% down).
> 
> ...


That is how you get rich. It doesn't take hyperinflation either. Regular old boring inflation does the same thing, it just takes a little longer. People don't pay much attention to inflation anymore but it is a bigger factor than they realize. Many ordinary properties have doubled in value in the last 10 or 15 years. Ordinary houses in ordinary small towns and cities.

If you have a few rentals that carry themselves you will become a millionaire in 10 or 20 years no matter what happens.

Even if real estate doesn't go up at all. Let me explain. Suppose you start buying rental houses today. In the next couple of years you buy a million dollars' worth. Don't pass out, in many places today that is 4 or 5 ordinary houses. Now suppose you keep them for 20 years and real estate never goes up a single penny. For 20 years all your friends are laughing at you.

At the end of 20 years, the tenants have paid off the mortgages for you and there you are, stuck with $1,000,000 worth of free and clear real estate. That is now throwing off an income stream with no mortgage payments to make.

But if you are a renter you know in your heart that is not going to happen. You know where rents and home prices are going in the next 20 years and it's not down.


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## Causalien (Apr 4, 2009)

Rusty O'Toole said:


> That is how you get rich. It doesn't take hyperinflation either. Regular old boring inflation does the same thing, it just takes a little longer. People don't pay much attention to inflation anymore but it is a bigger factor than they realize. Many ordinary properties have doubled in value in the last 10 or 15 years. Ordinary houses in ordinary small towns and cities.
> 
> If you have a few rentals that carry themselves you will become a millionaire in 10 or 20 years no matter what happens.
> 
> ...


Same argument could be said about renters.
I'll use Garth's argument since it is true in my case.

Suppose you put the down payment in an investment you'll earn more with compound interest after 20 years. There's always the argument that an investment is risky, but real estate is just as risky if not more due to the leverage. Ask Japan, ask USA for recent example. The only difference is perception. The truth in all of these is this: if you put in enough time to figure out how to make money in a certain area, you will eventually be able to.


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## Miser (Apr 24, 2011)

Compound interest of less than 1% is not a lot. Garth is guessing the future just like the rest of us.
Take your pick.


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