CAN YOU FIND FINANCING WITH LOW INCOME?

[Gunes K.]

I own 3 properties (1x in DC & 2x in Chicago). All of them are fully paid for. I live in one of my units and rent two of them. I make about $24,000/yr. from them. Unfortunately, I had to close my non-real estate business due to COVID, and in the last two years, the only income I get is my rental income. No rent, no car, single, no kids, so $2,000/mo. is quite enough for me. I was wondering whether I can qualify for financing for a new property purchase because I really want to move forward with real estate in my life. I can afford a 20% down payment for up to a $150,000 property purchase. 

If I buy a new property, I will rent it right away and turn it into another income stream. I was wondering whether I can qualify for financing with this level of income?

[Cara Lonsdale]

First, CONGRATS on being financially free!  It's amazing how little we need when you take out all of the debt in our lives, right?!

The short answer is yes.  You can qualify for a loan for your next purchase.  

By yourself, it may be tougher, but still can work. Lenders look at 29% of income to account for mortgage payment of subject property. Some guidelines allow for more. The debt to income ratio is 43%. That would be the mortgage payment PLUS all other debt (which it sounds like you have none). So, your DTI would be pretty clean. On $2K, 29% is only $580. So, if you found a property sub $75K, you could most likely make that work.

Now here is where the out of the box thinker goes..... search for properties that already have a Tenant in place.  If you put a property like that under contract, the Lender will be able to use up to 75% of the rental rate to add to your income used to qualify you.  So, let's say that the rent is $1200.  The lender will add $900 to your $2000 monthly income to qualify you.  That brings your 29% up to $841.  That should get you into about a $140K property with 20% down.  Again, final payment will all depend on taxes and insurance expenses for the exact property, but gives you an idea of what a lender would be able to do.

Keep in mind that a Lender can only use what you have listed on your taxes (Schedule E).  They can usually add back in depreciation and mortgage interest (which it sounds like you don't have), but any other expenses deducted would mean a deduction in your income that you can use for qualifying you.  Your CPA might have more insight on this as I am NOT an accountant.