Loan approval without experience?

Question

Hey everyone, I’m having difficulties understanding the lending side. I’m trying to house hack and would love to purchase 1 a year to grow. I found a property and closed on it. I plan to fixed it up while staying there and then rent it out and get another.

My issues come with lending. As someone starting out. The bank wants 2 years of tax return showing rental income. This is going to set me back 3 years waiting for a piece of paper. Is there another way?

Currently the only solution I can find is fixing and renting this out while locking myself into an apartment (which I hate the idea of).

I’m just trying to figure out my next step. How can I purchase another property on loan without multiple years of experience for the banks?

Doug Smith · Answer

A bank or using a conventional or non-QM-type loan is usually going to require 2 years of tax returns, but if you have enough down (20% - 25%) and you're willing to do the deal in the name of an entity, then you can do a DSCR or even a flip/bridge loan. Some lenders won't work with you if you haven't had any experience, but some will dip their toes in the water with you provided you have decent credit and enough down. Don't waste your time with the bank or a Fannie/Freddie loan at this point...go with a lender that is adept at working with investors. I hope that helps you.

Jay Thomas · Answer

When it comes to Real Estate investing, the conventional route of going through a bank or getting a non-QM type loan is usually going to require you to provide two years' worth of tax returns. However, if you have enough down payment (at least 20%-25%) and are willing to set up an entity for the deal, then you can look into a DSCR loan or even a flip/bridge loan. Some lenders won't work with inexperienced investors, but there are some who will take you on as long as your credit score is good and you put in ample down payment. Don't bother trying to get a Fannie Mae/Freddie Mac loan at this stage; instead, go with a lender who specializes in Real Estate investment. That should help you out!

Drew Sygit · Answer

Look at it from a bank's perspective - you started a business, yet have little experience.How do they know if you will succeed or fail?Let's look at an anology: would you rent to someone that has no credit history and just started their first job last week?You don't want to hear this, but if you're going to stick with real estate investing, you'll be better off understanding the "system", so you can operate within it:)

Eliott Elias · Answer

Use DSCR lending.

Eric Kump · Answer

Hey Shawn, I am a loan officer with VIP mortgage and may be able to help give some insight. Conventional and FHA loans require 2 years tax returns. You may be able get away with one in a conventional loan if the business has been around for atleast 5 years and you are showing enough income.There are other loan products that only look at down payment, credit score, and assets to qualify you, and do not take into account a debt to income ratio. Feel free to message me with any more questions!

Dylan J Berget · Answer

Congratulations on your recent purchase and your plans to grow your real estate portfolio. It's true that some banks and lenders require a minimum amount of rental income history, typically two years, before they're willing to provide financing for an investment property. However, there are a few possible solutions that you can consider: Look for alternative lenders - Some lenders, such as private lenders or hard money lenders, may be more flexible in their lending requirements and may not require as much rental income history as traditional banks. Be sure to do your due diligence and research the lender before committing to any financing options. Consider a co-signer - If you have a family member or friend who is willing to co-sign on the loan, this may help you qualify for financing even if you don't meet the rental income history requirement on your own. Keep in mind that the co-signer will also be responsible for the loan if you default on payments. Build your rental income history - While it may take some time, building your rental income history by renting out your current property and showing consistent rental income can help you qualify for financing on future properties. You can also consider getting a property management company to manage your rentals and provide rental income history.

Zack Karp · Answer

@Shawn Slaven you're talking to the wrong lenders. You absolutely DO NOT need 2 years of tax returns showing rental income.The only situation where you would need 2 years tax returns is for a new VA loan, and to be able to use rental income for additional properties that you own, and this does NOT include the property you are vacating. This is called a Conversion of Primary Residence (where you are going to keep your current primary residence and rent it out).Either the loan officers that you are talking to either don't know the guidelines, or the lender has an overlay on the actual guidelines.Feel free to reach out if you need help.TYFYS and best of luck!

Shawn Slaven · Answer

I live in it, then rent it out when I get another.

Shawn Slaven · Answer

I’m trying to capitalize on va loan usage. Primarily because of the major benefits. For example this unit. Only 100k 2b/1ba 370hoa. Trying to find lenders the best they could give me was a mortgage of $1268/m. While I went with navy fed and managed a better rate at $1040/m My credit was a 776. These units typically rent between 1200-1400 which is why I wanted the better rate. My DTI with this included is only 28%

Conner Olsen · Answer

Are you going to live in it and rent out the rooms?