Navigating Loan Approval and Property Investment Decisions

[Diosney Moraga]

Hello everyone,

I am new to the world of real estate investing and would appreciate any suggestions. I am currently facing a challenge with obtaining a FHA or 5% conventional mortgage. After leaving the Navy last year, I had a couple of W2 jobs, but this year I started working on a 1099. Additionally, my wife has started her own business and is also on a 1099. Lenders are hesitant to approve me for a loan because I don't have a two-year history of tax returns on a 1099.

The only option presented to me by lenders is a conventional loan with a minimum of 20% down payment. The house I am interested in is priced between 300-400k, and I don't currently have the 20% down payment required. However, I do have over 100k in equity on a rental property with a 2.5% 30-year fixed rate.

I am considering selling the rental property and doing a 1031 exchange to buy the new home. However, I really need a larger home and the 2.5% fixed rate is something I probably won't see again for a long time. It seems crazy to sell a property with such a low interest rate.

I would greatly appreciate any suggestions on this situation. Thank you.

[Esta Ryder]

I would definitely not sell the house wtih the 2.5% fixed rate unles you have decided not to be a landlord anymore- and it sounds like that is not the case.    I am a little confused if the house you want to buy is an investment property or owner occupied.  Either way, you should rent.  There are a lot of unknowns starting out with a 1099.  With both of you now a 1099, your income may fluctuate a lot and may not be great to start with (which is why lenders require the two full years).  I would just rent.  Save money and get used to the adjustment of going from a W2 to a 1099.  Then in 12 months or so, reevalute and decide what to do then.