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Imagine the following scenario:

  1. Gross annual income - $100k
  2. Cash (from property equity, shares, saving etc) - $100k
  3. No debt.
  4. Down payment - 20% (e.g. $20k) to be taken from cash pot.
  5. Mortgage - 30yrs fixed at say 3.5%.

So my question is will the remaining $80k be taken into consideration at all in terms of mortgage affordability or calculation is simply on DTI at 36% max of gross income?

Using online calculators that would imply house up to ~$688k (excl. taxes) yet I could use the $80k to pay $200+ every month for the next 30yrs on top of the required $3k mortgage payment...

I could of course use them to say put down a bigger down-payment, but with current (very) low interest rates wouldn't I be better investing part of the cash elsewhere (e.g. stocks, mutual funds etc) whilst keeping some to partially pay monthly mortgage bills?

Thanks!

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    If I'm reading this correctly, you are looking at an $80k mortgage on a $100k house. Is that correct? – Ben Miller May 27 '16 at 4:21
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Yes, mortgage underwriters will generally take into account all of your assets, including your savings and brokerage accounts. This information will be requested on the mortgage application.

The reason is one of risk to the bank. The worst-case scenario to the bank is this: you stop paying your mortgage and the value of the house drops to below the amount that the bank is owed on the house, meaning that the bank is unable to recover the funds even after foreclosing on the house. In this scenario, if you have other assets, you will theoretically be able to cover the shortfall, reducing the risk to the bank.

The fact that you are putting down 20% also reduces the likelihood that the bank will find themselves in this situation, as the house would have to drop 20% before it becomes a problem. The more you put down, the less risky it is for the bank.

As for whether it is wise to put down more than 20%, or to invest the extra money, it is entirely up to your comfort level with your investments and your debt.

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