Real Estate

Can a large down payment make up for low income?

  • Last Updated:
  • Jul 6th, 2020 9:09 pm
[OP]
Newbie
Jul 31, 2013
88 posts
70 upvotes

Can a large down payment make up for low income?

On a 1.2M house, with a 40% ($500K) down payment would it be likely to get approved for a 700K mortgage with income of only 70K gross at the moment. Reason being that my partner is laid off at the moment, and doesn't have any income for the next couple of months. I figure that with a down payment this size, the lender would basically have such low risk of loss. The down payment funds would be coming from savings (200K) and a HELOC (300K) on the current house. Any insights appreciated.

Edit: Our current house is worth roughly 700K. The idea is to use the HELOC to buy a new house and get settled in, and then sell the old one afterwards and use the proceeds to pay down the mortgage. The 700K mortgage would go down to 300K after that. Perhaps there's another approach I should be taking instead of the HELOC to cover the additional cost in the lag time between buying a new house and selling the old one (probably about a month in between the two houses). Also, no current debt in any form.
Last edited by TheFrostOne on Jul 5th, 2020 10:31 pm, edited 1 time in total.
15 replies
Jr. Member
Apr 6, 2020
109 posts
72 upvotes
Toronto
You'll get approved for a certain amount based on income, credit, etc. The amount of house you can buy will be the amount you're approved for plus whatever your downpayment is
GTA Real Estate Agent
Deal Fanatic
Mar 27, 2004
7746 posts
5710 upvotes
Toronto
No.

You're going to get like 4.5x your income as a mortgage only.
Full-time Realtor
Sr. Member
Jul 15, 2019
701 posts
565 upvotes
downpayments absolutetly can make up for lower income, however, in your situation there is no way a mortgage lender would give you 700K based on a 70K income. You will still only be allowed to borrow the same amount regardless, but the downpayment will allow you to purchase larger.
Member
Jul 2, 2018
309 posts
299 upvotes
Yes a good mortgage broker will be able to get you approved in this scenario.

EDIT: Sorry I was being lazy, just read that 300k is from a HELOC, that changes my answer.
Realtor + Investor
Member
May 29, 2020
296 posts
487 upvotes
Your down payment is 200K, an heloc still need to be repaid, and likely at a higher interest rate than a traditional mortgage.
Deal Expert
Feb 29, 2008
19075 posts
17401 upvotes
Tarrana & The Ri…
RealtorInvestor wrote: Yes a good mortgage broker will be able to get you approved in this scenario.

EDIT: Sorry I was being lazy, just read that 300k is from a HELOC, that changes my answer.
How is that possible? Even if the DP was from OP's own pocket....that leaves him at a mortgage 10x his income.
Deal Guru
Feb 9, 2009
12368 posts
11266 upvotes
No way you will be approved.

Do you mind us asking

a) why are you buying a 1.2 mil property with only 200k down (I dont count the HELOC since it's borrowed)? You would need like 700-800k down payment.

b) can you wait until your wife gets work again and then try?

c) can you buy something a little cheaper?
[OP]
Newbie
Jul 31, 2013
88 posts
70 upvotes
Our current house is worth roughly 700K. The idea is to use the HELOC to buy a new house and get settled in, and then sell the old one afterwards and use the proceeds to pay down the mortgage. The 700K mortgage would go down to 300K after that. Perhaps there's another approach I should be taking instead of the HELOC to cover the additional cost in the lag time between buying a new house and selling the old one (probably about a month in between the two houses). Also, no current debt in any form.
Sr. Member
Jul 15, 2019
701 posts
565 upvotes
TheFrostOne wrote: Our current house is worth roughly 700K. The idea is to use the HELOC to buy a new house and get settled in, and then sell the old one afterwards and use the proceeds to pay down the mortgage. The 700K mortgage would go down to 300K after that. Perhaps there's another approach I should be taking instead of the HELOC to cover the additional cost in the lag time between buying a new house and selling the old one (probably about a month in between the two houses). Also, no current debt in any form.
Look into bridge loans.
Member
Mar 3, 2016
389 posts
250 upvotes
TheFrostOne wrote: Our current house is worth roughly 700K. The idea is to use the HELOC to buy a new house and get settled in, and then sell the old one afterwards and use the proceeds to pay down the mortgage. The 700K mortgage would go down to 300K after that. Perhaps there's another approach I should be taking instead of the HELOC to cover the additional cost in the lag time between buying a new house and selling the old one (probably about a month in between the two houses). Also, no current debt in any form.
Is you old house fully paid? If not, then you will be carrying 2 mortgages + 1 HELOC at the same time until you sell the old house which can take a while. HELOC is still debt and you would need to pay it while also paying for your new mortgage. However, if your old house is fully paid, that means 700K asset + 200K saving = 900K. Then 300K loan with 70K is doable. However, the way you should proceed is to sell your old house first, then buy your 1.2 M house.
Deal Expert
Feb 29, 2008
19075 posts
17401 upvotes
Tarrana & The Ri…
Buy when you’re both working and can afford it. Prices could come down.
Deal Addict
Nov 13, 2013
3785 posts
2343 upvotes
Ottawa
TheFrostOne wrote: Our current house is worth roughly 700K. The idea is to use the HELOC to buy a new house and get settled in, and then sell the old one afterwards and use the proceeds to pay down the mortgage. The 700K mortgage would go down to 300K after that. Perhaps there's another approach I should be taking instead of the HELOC to cover the additional cost in the lag time between buying a new house and selling the old one (probably about a month in between the two houses). Also, no current debt in any form.
Do what “normal” people do buy and selll with closings at the same time. Why do you need a month to move?

Especially given your limited ability to borrow this will be a much better option.
Deal Guru
User avatar
Sep 14, 2003
10876 posts
974 upvotes
Mississauga
If I understand you correctly, you have a house that you own outright, worth 700k. You have no debt.

You are interested in buying a house worth 1.2M.

You make 70k a year right now as your partner is out of work.

If that's the formula, it looks like you are looking for 500k of borrowing, not 700k. I'm guessing you should be able to find a B-class borrower interested in taking on that debt. It's a very low risk proposition to them.

You, on the other hand, you have a take-home income of about $4400 a month, and your mortgage amount will be close to $3000 a month. Doesn't leave much to cover the rest of the bills.
4chan melts your brain.
Member
Nov 26, 2012
431 posts
469 upvotes
Toronto
So you are saying that the closing date of the sale of your current home would be 1 month after the purchase of your new home? Why not just get a bridge loan like someone else mentioned? As long as the deal is firm for the sale of the old house, you should be able to get one...

And just to be clear, you have $700k+$200k deposit at the end? So your actual mortgage is $300k? That should be okay. You would not qualify for a $700k loan at a normal lender.

But also keep in mind that most mortgages do not allow you to make lump sum payments within the first x months at all. And most do not allow you to pay off more than Z% a year without penalty. So your plan wouldn't work even if you qualified for the loan.
Deal Guru
User avatar
Feb 2, 2014
10284 posts
2994 upvotes
Toronto
TheFrostOne wrote: On a 1.2M house, with a 40% ($500K) down payment would it be likely to get approved for a 700K mortgage with income of only 70K gross at the moment. Reason being that my partner is laid off at the moment, and doesn't have any income for the next couple of months. I figure that with a down payment this size, the lender would basically have such low risk of loss. The down payment funds would be coming from savings (200K) and a HELOC (300K) on the current house. Any insights appreciated.

Edit: Our current house is worth roughly 700K. The idea is to use the HELOC to buy a new house and get settled in, and then sell the old one afterwards and use the proceeds to pay down the mortgage. The 700K mortgage would go down to 300K after that. Perhaps there's another approach I should be taking instead of the HELOC to cover the additional cost in the lag time between buying a new house and selling the old one (probably about a month in between the two houses). Also, no current debt in any form.
That's not happening.

For one, you're not getting a $700k mortgage on a $70k gross household income.

Secondly, you're not going to get approved for a $700k mortgage PLUS carry a mortgage on your current home PLUS the HELOC that you're borrowing for the down payment on a $70k income.

The down payment will only mean something if you want to take a private loan (over 6% rate plus fees).
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative

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