How to purchase first rental as a gig worker

Question

Hey everyone!! I am a newbie to the whole real estate investing business. I am really excited to get started, but I could use some advice. I am a gig worker and have not been working for even a full year, yet. Are there any suggestions for lenders who I could qualify with, given my situation? I am looking to purchase a multifamily home, hopefully within the next 2-3 months.

Also, do I have to have a certain amount of money in my bank for a certain amount of time before being approved for a loan? I imagine different lenders require different things, but I am wondering if this is a general requirement?

Thank you in advance for your suggestions!!

Crystal Thomas · Answer

@Kenneth Reimer Hey Kenneth!! I appreciate the advice. I am interested in 2-4 unit properties, although I will keep my options open and look at single family homes, as well.

Are there any particular lenders you recommend? I tried applying through LendingHome, basically because I was told all I needed was a credit score of 660 or better to be pre-approved, but that was not the case. It was my fault for not asking, but I was denied due to insufficient credit history. I know that is something I will need to continue to work on for any future purchases, personal or investment, but do you know of any lenders willing to lend to a person in my situation? It seems most I have researched look for at least 3 tradelines and for them to be open for a year or more. I have yet to find one who requires less. I currently have only 1 tradeline open for 3 years. I recently got approved for 2 more, but obviously that will take time to build the history.

What is your opinion on seller financing? It seems like it would be a last resort for me, but is it something worth trying if I wanted to purchase a home sooner than later?

Thank you again!!

Kenneth Reimer · Answer

@Crystal Thomas Crystal, welcome! You've taken the first difficult step of your journey in outlining your goals!

As for lending, all lenders are different, and it depends on a lot of factors. First, do you mean multifamily as in 5+ units or 2-4 units? The lending is very different. For example, lenders of 5+ units look at the property more so than the borrower. They're asking themselves whether or not the property can sustain the loan and if you are seasoned operator to ensure that it does. That's not to say that they don't look at you as well, but it's a major distinction. After Covid, a lot of lenders are also requiring a reserves account with 6-12 months of principal and interest payments after closing, just to ensure that they are covered in case Covid flares up and you lose rent for whatever reason. Always keep in mind that the lenders are not in the business of taking risks, and are scared of their own shadow. In summary, you have to make them feel comfortable that you will always make your mortgage payment.

With 2-4 units, the lenders are looking more so at you. Is her income sufficient and stable enough to cover the mortgage? What is her down payment, etc. Depending on your strength, they often require that you have a certain amount of cash at closing. For example, when I bought the home I live in, I had to prove I had 12 months of principal and interest payments when I closed. The silly part, is that it's not held in an account, so I could have in theory gone out and spent the cash, but it is what it is.

Hope this helps and I'm happy to answer any other questions you may have!