I have low income about $50,000 a year since divorce. But I am about to sell my house for $2 million, and possible gain about $1M profit. I can put a down payment of $300,000 to down size to a house that cost about $600,000.

Is it possible for me to find a bank who can approve me for $350,000 so I can buy the house in the $600,000 range since there is nothing else below that price range in Los Angeles?

  • 2
    You might want to ask at the bank, but you are probably better off just paying cash for a home.
    – Pete B.
    Jan 10 '18 at 11:34
  • There are lenders (though probably not banks) that do this. Search for "asset based mortgage".
    – jamesqf
    Jan 11 '18 at 18:22

Why would you need a mortgage to buy a $600,000 house, if you have a gain of $1,000,000 from your previous house (in cash)?

But 7x your annual income is a fairly high mortgage, I guess it would be only a very few banks who would be willing to help you out with that. Remember that what is important for a bank, is your ability to service your loan - you cannot service your loan with equity stashed away in a house.

As a general rule, the amount of savings you have will not influence the amount of money you can borrow in such a situation. That being said, it is not entirely true because most banks will be willing to lend you more if you have a decent savings - but stricly speaking, theoretically, then the amount would be the same.

  • 2
    Income is key for loans because there's nothing stopping you from going out any buying a $500K boat after closing the mortgage, then you can't afford to pay the mortgage. Lenders assume (rightfully) that there's a reason you aren't putting those extra assets toward the house.
    – D Stanley
    Jan 10 '18 at 14:21
  • 1
    Exactly! ..and if you have the cash/money, why take out a loan rather than using the savings instead.
    – ssn
    Jan 10 '18 at 19:47
  • @ssn: Because the mortgage interest is at 3-4%, while my mutual funds have been returning 7-8%?
    – jamesqf
    Jan 11 '18 at 18:19
  • @jamesqf: Yes, but this is not the subject of the matter - now we are talking the possibility to obtain mortgages with debt-to-income in the level of 7x. Also risk-wise the two are vastly different: 1) is investing money you should (in theory) be able to afford losing, 2) is a real asset where you can live even in economic downturns where your mutual fund may return negative profits. Not everyone is willing to, or should, take that risk.
    – ssn
    Jan 12 '18 at 9:56
  • Yes that is my dilemma. If I have $1M+ in cash, do I want to put most of it in a house or diversify it in other investments like stock/mutual funds? Would love to hear all thoughts and arguments. Learn so much on here from everyone.
    – cf2017
    Jan 12 '18 at 19:14

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