Financing multiple properties-income requirements?

[Stephanie Sherman]

Hi all, 

I would love some advice from you veterans. I own a home in Portland, OR that I bought right before the crash and now since the market has recovered here I have about 135k in equity (more if I sold it of course). The house is in a neighborhood that is still fairly affordable and transitioning. I'd like to get an FHA loan to do a cash-out refi and use the money for home improvements, some minor debt pay down (mostly to raise credit scores) a cushion for starting my real estate career, and ultimately buy a new house and convert the current one to a rental. I've spoken to a couple mortgage brokers before finding BP (not ones familiar with REI) who have said that the difficulty is having the income to qualify for both loans. Now, a large reason for my career change is hoping for better income, but I haven't seen much discussion on here about needing the income to qualify for both mortgages-- is that a real concern? For the record I know I won't be able to have multiple FHA loans, and once we're in a new primary residence and have the rental, my plan is do flips/rehabs or buy and holds depending on the deals I find.

So, advice please! Any reason it's a bad idea to convert the current house to a rental? Anything else I need to know or am missing?

I am open to selling if that's a better plan, but would still cash-out first to spruce it up for sale...

[Matt Garboden]

I'm far from a professional, but I've played the game you're referring to a couple times. Hopefully somebody here will correct me if I'm wrong, but the banks won't count prospective rental income in the debt to income ratio until the unit shows up on your tax return for a year. So, in essence, you do need income to cover both mortgages if you're buying a new house and planning to rent the old one.

If anybody has a hack for this, I'd love to hear it.