Only have 1 secure credit card, will i have trouble taking loans?

[Christian Olivo]

Hi! First post ever! I am a new RE investor; I would appreciate your help.

I have had a Capital One secure credit card for many years now with a limit of $500 (I have try to convert it to a normal Credit Card but capital one doesn't do that). I have another Macy's credit card that i opened without thinking but will soon disappear since i only used it once and haven't use it in many months (for that reason, i don't usually count it). As of now, according to Credit Wise from Capital One page, my credit score is 720 and I owe $0 on both credit cards. Let's say I want to invest in a $500K home and will pay 20%, will I have trouble getting a loan and trying to do BRRRR in the home?

If yes, what would you recommend me do? Open 1 normal credit card (I know opening many credit cards at once will impact my credit score for a while)  to increase my loan limit? Does the loan limit even matter in this case or just try to buy a much as i can with my secure credit card?

[David M.]

@Christian Olivo

You really need to talk to a good lender to give you real numbers. But, in short you are looking at this all wrong. Your credit score doesn’t solely decide how much money someone will lend you. It’s more so if at all (if you have a crappy score) or at what cost (betters scores get slightly lower rates).

But, if you truly have a 720 score (there are many fico algorithms out there and many websites “sell” you on other fico scores but not the one used for mortgages) then you will qualify for most conforming loans.

But, to figure out how much of a loan you can get you need to have a lender run the numbers. Some really rough rules of thumb would be 2.5x to 3x your gross income (assuming very little other debt). So, if you had a $100k salary, you could borrow $250k to $300k loan. This a very rough rule of thumb because you need to take into account the property taxes and insurance payments. In NJ where we have some of the highest property taxes in the US, it’s a big deal.

Basically, the loan officer needs to be able to show the underwriter who is following govt guidelines/regs that you have the ability to make the mortgage payments. So if you add up the principal, interest, tax, insurance (PITI), can you reasonably make those monthly payments?

Make any sense?