Is it possible to get a mortgage on a very low income?

Question

I own my own house and have about 60k equity. I need to move because of serious problems with neighbours. I am a single parent with a 12 year old Daughter. I owe about 70k on my mortgage and am looking to pay it off and then start again with probably exactly the same amount. I was previously working full time and earning a lot of money but due to stress levels I had to resign from my job. After a short break on benefits I have started my own business but am earning a third of what I was before and it is topped up by tax credits. I am however like a new person and have never been happier. I have not missed a payment since my circumstances have changed thus proving that I am still able to pay my mortgage, however I am convinced that they would only look at what I am earning now and probably only offer to lend me about £20k if I am lucky. Also I defaulted on a loan, however I have an arrangement with the bank and am paying them a token amount every month, will this also go against me. Does anyone know if there are companies that will deal with people in my situation. Im scared that i'm going to be stuck in this house forever!!!! please help!!!!

Answer 1

Firstly, don't go for "companies that will deal with people in my situation". If by "my situation" you mean low income and bad credit rating then any loan you do get will have extortionate interest rates. So even if you can afford the repayments on the current £70k loan, you probably won't be able to on the new one.



Lenders make business decisions about whether to lend money. Although logically you would think they should take into account the fact that you are repaying your current loan, they won't. They will take the opportunity to reassess how credit worthy you are, and will lower income and a loan default since your last mortgage they will probably not lend you the same amount. The banks also have to look forward for the whole life of the loan. At the moment interest rates are at rock bottom. When they go up, so will your repayments, and you might then not be able to repay.



House prices are not rising at the moment, and on some measures they are falling. So if you are desperate to move you could consider selling up and renting. Alternatively, you could stick it out for a couple of years while you work on boosting your income to the level needed to get the mortgage you want.

Answer 2

It will depend on your credit rating, your debt ratio, Income ratio, etc. If you're self-employed they will take even a closer look to substantiate your income.



The short answer, No, not for a mortgage, not right now! Also, you don't want to do business with someone who would, that would be a nightmare!



Here's what you should do, you need to investigate where you would fall short in the underwriting process (the lending guidelines). You should go to a reputable mortgage company or bank to check your credit and fill out a mortgage loan application. Be persistent! A smart loan officer would know that you represent future business for her/him. Have them walk you through, in detail, how to clean things up over time (I call it a "get well plan"). Why am I telling you this? This will be the best education you can get. This knowledge and experience will put you back in the "drivers seat". If you set up and work this plan, the chances of you tarnishing your credit in the future will drop to almost zero! I know that it does not seem like it now, but this another piece of your life you can take back control and substantially improve your current situation!

Answer 3

I am confused as to what your asking. When you place a home up for sale the person buying the home will satisfy your existing mortgage and you will get whats left over (what your calling equity).



You may take this left over money and use as a down payment on a new house. I believe your thinking you want to spend about the same on a new home as your current homes value. So your down payment will roughly be 40% - 50% of the purchase price (60k down)



The way to figure out how much of a monthly payment on a mortgage you qualify for is as follows. This formula is used no matter what your credit situation is.



1. Take your total monthly income (before taxes) and write it down.



2. Then write down all of your monthly credit obligations that get reported to the credit bureaus. Examples are child support, credit card min payment, student loans, car payment. You may or may not have any of these. Your light bill, tv, phone, and other utilities do not count.



3. Add up your monthly obligations.



4. Take your monthly income and multiply it by 43% then write down the result on the paper.



5. Lastly, subtract the total monthly obligations from the number you got after you multiplied by 43%.



This is the max a lender will allow you spend per month on a mortgage. All lenders calculate this the same way it is called DTI or debt to income ratio. Some lenders have some exceptions. If you are a really strong applicant with awesome credit they may use up to 46% or 47%.



Once a lender has figured out what interest rate you qualify for they will look at your requested loan amount and see if the payment will fit into your DTI.



Farther more, having a healthy down payment is no replacement if your DTI is out of line.



Hope this helps