Investment mortgage - will this affect my personal home purchase?

Question

I'm looking to make my foray into real estate by purchasing a MFH (probably a duplex) in a nearby state, about a two hour drive from where I live and where property values are much much lower. The properties I'm looking at are around $40-$60k and, depending on the size and condition, the individual units should rent for around $500 to $750, so it should be cashflow positive.

My fiance and I both rent our current apartment and have no debt of any sort. Depending on my overtime, we gross about $170k/year between the two of us. Our credit scores are both 790+.

We also recently found out that we're pregnant (well, she's doing most of the work!), so we will likely be trying to move from our one bedroom apartment to an actual SFH in a year or less.

Unfortunately, an average sized home in a mediocre to decent area by us can easily cost $500k or more, not to mention property taxes well over $10k/year.

I just got off the phone with a credit union and got pre-approved for a loan for the investment property, however should I go to them for a mortgage on a second house in the future, they will not count any rental income until I've had that MFH for at least two years.

My concern is that if I go ahead with the purchase of an investment MFH now, and next year I go for a mortgage on a SFH for our primary residence, we will only be approved for a mortgage of $XXX, whereas if I had never purchased that MFH, we would be approved for $YYY, where YYY is significantly higher than XXX.

Depending on the exact purchase price, the mortgage on the MFH would likely only be for around $45k or so maximum, so with a correspondingly low monthly payment, I'm not sure if that's enough to really make a large difference in what I'd be approved for a year down the road, but I'd definitely like to know in advance rather than be surprised by it!

Tyler Brown · Answer

Account Closed, in theory I could pay cash for the property, however that would just about wipe out my savings account, and then I'd have nothing left for a down payment on our home.

Account Closed · Answer

Don't know how much cash you have on hand but you could pay cash for the multi, then get mortgage on your personal residence and once that's done, do a cash out refi on the multi.

Jackie Tan · Answer

Hi Tyler:YES, it will affect your DTI (debt to income ratio).But you can easily offset that number as long as your monthly lease income is large enough. Also, some lenders will not allow you to have more than 4 properties on your credit. So if you are purchasing investment and or rental properties ---best to do vesting under separate LLCs for each property for asset protection. Under those LLC loans---some lenders will allow NON recourse if you qualify. YES, there are NON recourse loans for residential rental properties.

Jean Bolger · Answer

That's great- I'd guess the last thing you'd want with a new baby is a nasty commute. Another thing you might possibly consider is starting with an owner-occupied duplex. It's a great way to get the benefits of the low downpayment options that owner occ loans have, and get into an investment property at the same time. Lots of folks will do that and then move on to a single family home after a few years. Admittedly, it might not be the most practical approach when you are also dealing with a new baby. It's also dependent on the housing stock in your area and whether there are duplex properties there that you would be willing to live in, of course.

Tyler Brown · Answer

@Jean Bolger We live in Manhattan, so there's really no such thing as a SFH here unfortunately. My fiance is a school teacher, but at an inner city Bronx school where the students swear at the teachers, fight, and steal on a regular basis. Some of them literally live in homeless shelters.She's pretty sick of the atmosphere there and is applying at schools in the suburbs. My job is also close to the suburbs, so while I love living in the city, the suburbs would fit both our commutes fine and would arguably be a better place to raise a child.I may hold off on the investment property for a little bit while we get everything in order with our own SFH, then once we're settled in there start saving up again for a down payment on a MFH.

Jean Bolger · Answer

That 2 year wait before they'll count rental income is pretty common. Without knowing more, it's hard to advise on the personal home buying. It does sound like you might be better off holding off on the investment property if you want to be sure of getting approved for a decent mortgage amount. However, I would take a hard look at the comparison of what it costs in your area to buy versus rent before you make any decisions. Sometime (oddly enough) it really is cheaper to rent. Or you can stay renting in an area you really want to be for the same price as it would cost to buy in a cruddy area with a long commute. I know the nesting instinct must be kicking in, but there's no rule that says you have to buy because you're having a baby, lol!Definitely talk to a mortgage broker or two about your situation as well and see what they say. It sounds like you are in a really good place financially for this point in your life, so you have options, which is great.