Buying A Home Without Adequate Income

Added May 9, 2008 by Ilyce R. Glink

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Summary: Without adequate income, you can't qualify to get a mortgage loan to buy a home. In addition to income, lenders want to see that you have a good credit score before giving you a mortgage loan. Once you've got the income, a good credit history and credit score, you can start looking for a house to buy.

Q: My parents own the home that I live in. They would like to sell the property because they need the money. The property is worth at least $300,000.

My idea is to ask a bank to give me a mortgage for $230,000. I'd pay my parents $200,000, or something like that, so that they, (my folks) can have most of the cash-value, but the bank will have some equity/collateral as an incentive to give me the loan.

I can then use the extra $30,000 to pay the mortgage, (which would be about $1,600 per month), 'till I get back on my feet financially, or I sell the property.

Is there any jargon or terms I can study up on, and does this sound possible, or can you make any recommendations?

A: This sounds like a good idea, but in reality, few if any banks will give you a loan with an income of $140 per week. That's an income of $7,280 per year. A 30-year fixed-rate $230,000 loan at 6 percent would cost you $1,378 per month, and that doesn't include an escrow for real estate property taxes and homeowner's insurance premiums.

You would need to have an income of maybe $100,000 in order to afford a home that costs $300,000 or you would have to have significant other assets to give the bank a reason to give you a loan.

If you are looking for a place to live and your parents can't wait to sell their home, you should plan to move out of your parents' house and into an inexpensive rental. With the cash they get from the sale, perhaps they can help you pay for your rent until you're back on your feet financially.

I don't know what your credit history or credit score looks like, but these days, lenders are looking for a credit score of at least 680. Please visit AnnualCreditReport.com and pull a copy of your credit history. You can then pay around $7 for a copy of an Equifax credit score, which is the one closest to what mortgage lenders use.

If your credit score isn't at least 680, then you should take the next year or two to work on rebuilding your financial life: Find a job, rent an apartment, start saving the 5 or 10 percent you'll need for a down payment, plus extra for reserves, and work on cleaning up your credit history.

Once you've started your new job, rebuilt your credit history and raised your credit score, you can start looking for a house to buy.

If your parents want to wait a couple of years before they sell their home, you might be in better shape at that time - with a new job and a high credit score - to buy the home from your parents.

Good luck.

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