Financing my first investment property

[Asher Anthes]

Hi guys, I'm brand new to the site. I've been reading a lot here and can tell I'll be spending alot of time on here.

I just bought my first home in may of this year. I'm looking to purchase my first investment property as soon as possible. I've talked to a few lenders, but it seems my debt to income ratio is quite tight because of my first mortgage.

I'm living in the house and renting it out to friends as well. My monthly rental income is $1350 and my mortgage payment is $866. But the banks aren't able to count this income on my debt to income ratio.

What's my best options for getting approved for financing? How much of potential rental income on the new investment property could they use for my ratio?

Thanks for the help!

[Jesse Poll]

I think that if you put leases into place and count the rental income on you taxes this will create the track record that lenders need. Although the large lending institutions will require two years, some of the small private lenders can get around this as Mogi said.
Good luck.

[Sharon Vornholt]

Asher =

Why don't you think about wholesaling to build up some cash. Then when you have some cash, you will have more options.

[Asher Anthes]

yeah, I've thought about that. but I really want to get into the buy and hold strategy for the long term. I have the 10 - 20 % for the down payment. I just want to find a way to get financing. My income can totally support my debt (considering I'm profiting on my current property I live at), but the banks won't recognize this.

[Curt Davis]

Asher, I think if you buy a few properties you will learn a few basics on how to wholesale as you will learn the process in your pursuit of purchasing.

If you have good credit and make decent income you should be able to qualify. You just need to find a lender who is experienced in investor financing and not your regular lender. Good luck

[Mogi P.]

If you are adamant about getting a rental property, there is a way around your situation. I would talk to small mortgage companies that do in-house underwriting. They tend to be more lenient than the big banks. When I say "lenient", I don't mean they will give out free money. You must still prove your case. This could mean having some sort of lease agreement with your tenants, records of rent payments, or whatever it may be. Good luck.

[Miranda Rich]

Im sorry i am new here. What is wholesaling?

Originally posted by Sharon Vornholt:

Asher =

Why don't you think about wholesaling to build up some cash. Then when you have some cash, you will have more options.

[Jesse Poll]

I think that if you put leases into place and count the rental income on you taxes this will create the track record that lenders need. Although the large lending institutions will require two years, some of the small private lenders can get around this as Mogi said.
Good luck.

[Corey Dutton]

Wholesaling is harder to get into. It means having all of the right connections. What about getting an interest only, hard money loan for 2 years to get your payment history and rental history established? Is it the larger down payment requirement that can't meet or the higher interest rate that is daunting?

[Michael Lauther]

Miranda, There are many threads you can read here or search articles for wholesaling above. Essentially Wholesaling is putting a property under contract and assigning that contract to a third party for a fee. This approach requires far less cash than actually buying the property.

Asher: you indicate you have a down payment. Perhaps your down payment can purchase a rental property in a different market without the need to finance. Just a thought.

[Ali Young]

Asher Anthes look for a mortgage banker (not broker) who offers long term loans. I went through the same situation and this was a superb solution because their mortgage debt to income ratio was at 45% vs. 31% with big banks.

[Asher Anthes]

That's interesting Ali. I was just wondering how debt to income ratio is calculated. Here's my approx monthly income and debt:

Pre tax salary: $3,330
Gross Monthly Rental Income: $1,225
Total Monthly Income: $4,555

Mortgage: $915
Student Loans: $273
Minimum Credit Card: $10
Total Monthly Debt: $1198

According to this I would assume my debt to income ratio would be 1198/4555 = 26%

However, when I went to a few banks a few months ago they said my ratio was in the low 40%'s. I'm assuming they are not counting my rental income because my taxes weren't filed. I have one years tax returns and lease agreements under my belt. That's got to count for something at least with smaller lenders. Right?

[Ali Young]

Rental income unless previously reported on your taxes is generally not counted towards your income. This would leave you at 35% vs in the low 40's. Some big banks factor in your estimate housing expenses which may be the difference but check your credit report and make sure that you are not missing anything.