How Do I Finance My Third House WITHOUT W2 Income?

Question

Hi Everyone,

I bought my last 2 properties while I still had a W2 job. One property is a condo (in CA) that I rent out, and the other property is a house (in NV) that I live in and rent out the other rooms.

I quit my W2 job last year to start a business, which is slightly profitable today, but I reinvest everything back into the business.

I have a bunch of cash saved up and am comfortable deploying $100K into another property in Las Vegas ($80K down payment + $10K furnishing + $10K margin).

The only problem is that I’m not sure how to finance my next house without W2 income.

I talked to a few lenders about DSCR loans, and most say they calculate rental income based on the entire house, instead of by the room.

I would love to get the creative knowledge of the BP community on how to fund my next home 🙏🏼

I'm also open to any lender referrals 😊

Matthew Crivelli · Answer

@Kayla Weigel Commercial loans are the way forward. 30Y DSCR and rehab loans. You don't need W2 income, tax returns and no one is looking at DTI. The loan process is quicker too. The downside, these types of loans are more expensive. Because you are buying in NV you will need to look for local lenders, most nation wide commercial lenders won't lend in the state.

Carlos Valencia · Answer

Hello Kayla, Congratulations on your current success with your business and real estate investing. Looks like you are off to a good start making moves and working to build your real estate portfolio as well as building a business for yourself and working for yourself. Another lending option you can use aside from DSCR is Bank Statement loan program since you are a business owner. Bank statement loans work great if your business gets a large amount of monthly deposits because the way the lender calculates income is by adding all your deposits over the last 12 months then cut it in half and divide that total by 12 months then take 50% of that remaining balance and use that to calculate your DTI. Due to how the income is calculated is the reason why you need huge deposits every month. Bank statement loan program is another one to look into and see if its a program you can use. Otherwise DSCR is the best option but you do need 20 -25 % down for DSCR and its non owner occupied. Plus you will need 6-12 months in reserves. @Albert Bui @Matthew Kwan @Kin Meng Sio

Salvador Auciello · Answer

two ways to do this loan. 1. Bank Statement loan where 80% of the gross income will count so you can get a favorable DTI.This loan can be for both owner occupied or investment loan. Pros better rates than DSCR and no prepayment penalties.2. DSCR with a good rate there are ways to get the property to debt service. 3. Back up plan a No ratio DSCR loan would be super easy but higher then both options above.

Lyn N. · Answer

DSCR where it focuses on the asset and deal itself over your personal income

Dave Skow · Answer

@Kayla Weigel- thanks ...DSCR or possibly find a partner / co borrower ...on your business - if you end up showing a positive income in 2024..you mght be able to get a full doc loan next yr once the 2024 returns are filed . FYi - in most cases -the rental income from the rent of rooms in your home wont be usable for qualifying purposes

Alyson Gordon · Answer

I'd highly recommend Parker, she can help you look at your finances and see what you'd qualify for. It would be a really worthwhile strategy call vs just calling lenders and see what you qualify for. If you have rental income history and business income history you should still be ok to qualify for loans ok :)Good luck! https://wealthbuildersmortgagegroup.com/

Sasha Mohammed · Answer

Hi @Kayla!One question i have for you - do you intend to reside in the subject property? or would it be fully a rental?if you intend to live in it, there are strict ATR rules for consumer loans. this means the lender will have to qualify you with income one way or another. if self-employed, you have a few options that will eliminate the need for tax returns. You could try a bank statement loan, or even a potential P&L program if the lender allows. If you don't intend to live in it, and it is fully an investment property, than you could go with some type of commercial loan. DSCR is an example of this. Given that you intend to furnish the property, you could submit your purchase as a DSCR loan using short term rental income to qualify. there are a few lenders out there which will accept STR income even if there is no history of such. This would depend on the appraiser giving value (as you're accustomed to), and additionally, a comparative rent schedule using short term rental comps in the area. The big elephant in the room is whether this is intended to be another house hack, where you are occupying one of the rooms yourself; or if it is fully an investment property and you will reside elsewhere.

Alex Hunt · Answer

Hey Kayla, no w2 needed for DSCR lenders. Either a DSCR lender that allows negative ratio. Or does it pass as a STR? Then go with a lender who can do that. Both covered, happy to connect!

Erik Estrada · Answer

Hi Kayla, If this is a purchase loan, you may be able to finance this with a No ratio DSCR loan. Lenders will not factor the DSCR ratio to qualify. You can also do it on a normal DSCR loan with a .75 DSCR ratio. You would be looking at a minimum of 25% down for either option.

Bradley Buxton · Answer

@Kayla WeigelI'm in the Reno, NV market and there are difficulties using DSCR loans because of the low rents from legacy landlords. Most of the deals on multifamily and single family DSCR loans are requiring 50% down. I have some local Nevada DSCR lenders that I can refer you to. They have the knowledge to guide you on different options you have in the state.