Impact of purchasing investment property before first home

[Michael Hunt]

Hello,

My partner and I want to get started on rental properties (~$200k, out of state, multi-family), but are also looking to buy our home in the next year or so ($800k+) in SoCal.

What kind of impact will having a rental property (and therefore the associated debt) have on our ability to finance our home? For reference, we have 800+ credit scores and combined make about $350k/year.

Should we buy our first house before exploring rental properties?

Thanks!

[Scott E.]

Buying an investment property prior to buying your first home is not a problem.

The lender will give you credit for the rental income on your investment property, which means that the debt associated with that property will have little to no impact on your debt-to-income ratio. 

Max DTI ratio is going to be ~45% when you go to buy your primary in SoCal.

If you're making $350k per year, that is $29,166 per month.

Assuming you put 20% down on your new $800k home, and assuming rates are around 6.5%, your mortgage payment will be ~$5,000 per month when you include taxes and insurance (taxes are high out there in SoCal!)

$5,000 / $29,166 = 17.14% front end debt-to-income rate.