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Getting a mortgage when you have a large downpayment


Achillia
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Hi all!

 

I am an old style bohemian artist and blush to say that at age 58, I have never bought a house. My credit is good (balances but nothing derogatory, and the mortgage company that pre-approved me said it was fine). My employment history has always been spotty and freelance. I have a solid net worth (a little over a million) but I am an urban dweller and have always shied away from homebuying because I did not want to be "house poor."

 

Without getting into the details, I am about to inherit a large amount of money, some of which will be tied up in a trust, but much of it will not. I plan to use a fair chunk of it as a downpayment on a condo-- this will be a 50% downpayment, with the rest coming from financing.

 

My question: will this big downpayment offset my somewhat unconventional financial history? I'm not all that experienced obviously and am feeling very nervous.

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Even with a large down payment most lenders will still require you to have enough qualifying income to repay the mortgage.  There are some "no ratio" programs where income isn't factored into what you can get approved for (thus "no debt ratios" are required), as well as some lenders have an "asset depletion" program where they can take any remaining liquid assets you have and divide them over XX amount of months to come up with an income amount.  You can also set up a trust to pay you a monthly amount and as long as it'll continue for at least 36 months from the time you close then it can be used as qualifying income.

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21 hours ago, Achillia said:

Hi all!

 

I am an old style bohemian artist and blush to say that at age 58, I have never bought a house. My credit is good (balances but nothing derogatory, and the mortgage company that pre-approved me said it was fine). My employment history has always been spotty and freelance. I have a solid net worth (a little over a million) but I am an urban dweller and have always shied away from homebuying because I did not want to be "house poor."

 

Without getting into the details, I am about to inherit a large amount of money, some of which will be tied up in a trust, but much of it will not. I plan to use a fair chunk of it as a downpayment on a condo-- this will be a 50% downpayment, with the rest coming from financing.

 

My question: will this big downpayment offset my somewhat unconventional financial history? I'm not all that experienced obviously and am feeling very nervous.

 

this is off topic a bit but let me tell you a story about a couple of our friends. They rolled all the equity from the sale of their first home into a bigger, dream home. It meant they were able to put 40% down. They thought they were living pretty... then the Great Recession happened. The dream home dropped >50% in value and they ended up in a short sale (job losses). All their equity was wiped out.

 

Just wanted to point out this risk. If I ever need a mortgage again I will not put down any more than I need to in order to qualify for the best terms available,.

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Life has its risks, but given that this is a ten minute walk from Harvard and maybe a half hour walk tops to MIT and a variety of bio tech companies, I feel it is likely to keep its value. It's not a luxury dream house, btw-- it's a condo that needs some upgrading. I'm getting the cheapest unit in the best possible neighborhood. 

 

What you said though is on point-- I have been deeply resistant to buying real estate all my adult life because I did not want all my equity to be tied up in a house, i.e., being "house poor." I flat out refused any "golden handcuff" situations.  I would not be house poor in this scenario. I am *not* sinking everything I have into a condo, not even close. Even if I never worked again (which I don't plan on doing), my income would be pretty damned solid. 

 

Of course disasters happen. Earthquakes. The walking dead. Maybe Boston will turn into Mississippi. 

Edited by Achillia
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Just a question Hegemony, but wouldn't your friends have lost their equity even if they had stayed in their old place? Or is this a situation where they put everything they had into a "dream house" they could only afford if.... well, nothing changed at work? The latter sounds like a disaster.

Edited by Achillia
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9 minutes ago, Achillia said:

Just a question Hegemony, but wouldn't your friends have lost their equity even if they had stayed in their old place? 

 

perhaps but they owned it outright; it was more the impact of the recession on their financial well-being. if they put 20% down on the dream home and rest in the bank their situation would have been very different.

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Gotcha. In my case, I currently own no real estate outright. I have an apartment with a friendly landlord who doesn't charge me the market rate. I already know that when he dies, his kids will want to do a gut renovation and sell.

 

So I'm buying a condo. In a very, very expensive city where even small condos go for a million. I'm heavily invested in staying here though for my art career, and I am not even considering putting everything I have into this, not even close. If I moved to western MA, I could buy a dream home for cash, but I don't want to live there, my partner can't live there because of her job, and I don't need or care about "dream homes".

Edited by Achillia
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19 minutes ago, hegemony said:

 

perhaps but they owned it outright; it was more the impact of the recession on their financial well-being. if they put 20% down on the dream home and rest in the bank their situation would have been very different.

 

Regarding the bank situation: as I recall, investments also tanked back then. But yeah, owning your home outright is valuable. Sounds like they bought more than they could afford.

 

I mean, this is what people do: they fold the money from their old home into the new home and thus get a nicer home. I personally would only do that if the rest of my assets and retirement savings were really, really solid.

Edited by Achillia
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On 2/22/2023 at 7:31 PM, liverichly said:

some lenders have an "asset depletion" program where they can take any remaining liquid assets you have and divide them over XX amount of months to come up with an income amount. 

 

My mortgage broker proposed exactly this. Also, about half of my net worth will be in a highly unrestricted trust (which is releasing the downpayment amount).  This seems to be the best option if you don't have a conventional W2 job.

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3 hours ago, Achillia said:

 

Regarding the bank situation: as I recall, investments also tanked back then. But yeah, owning your home outright is valuable. Sounds like they bought more than they could afford.

 

I mean, this is what people do: they fold the money from their old home into the new home and thus get a nicer home. I personally would only do that if the rest of my assets and retirement savings were really, really solid.

it is also unlikely we'll see a recession like 2008 for a generation. But I just wanted to suggest not putting down more than you need to leverage your finances into a home

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On 2/24/2023 at 12:59 PM, hegemony said:

it is also unlikely we'll see a recession like 2008 for a generation. But I just wanted to suggest not putting down more than you need to leverage your finances into a home

 

Man, I hope not. Those were dark years for me.

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