Prop 1 giving me the itch... when to go for #2?

Question

Hi guys,

Just purchased my first rental property in S. Florida (first time homebuyer), and am going to take the next year to get a feel for prop management and save some money while living in one side of the duplex.

Question I have is how long will lenders typically make a first time homebuyer wait until they will let you make a move on another property?

Chances are we won't be moving into the next property as an owner operator so there goes my 3.5% down option, so what options are available to finance a 2nd property with depleted funds???

Thanks for your insight!!!

Brie Schmidt · Answer

@Justin C. A portfolio lender is a bank (usually local or regional or a credit union) who keeps the loans in house.  So what I was talking about before with the 2 years experience - that is a Fannie/Freddie requirement (the link I provided)  and they can only sell it if it is considered conforming to the Fannie/Freddie guidelines.  If they keep in in house then they can make up their own rules.

Every bank is different and might not take your kind of loan now, but in 6 months their own portfolio may be lacking in that area and they will want to take on your kind of loan.  I just listed to this podcast where they talk a lot about what a difference a good bank relationship makes.  I couldn't agree more.  I called 30+ banks once with a deal and got all no's but did get 1 yes

http://www.biggerpockets.com/renewsblog/2014/04/03/064-full-time-50-units-josh-sterling/

Justin C. · Answer

Thank you guys! I AM going to start watching the podcasts.

Jeremiah- What is the difference between a typical lender and a portfolio lender?

Jeremiah Schwersenska · Answer

@ Justin C,

I would definitely take some time to educate BP and your local library can help you out especially with learning the prop management.

I also would seek out local community banks who are portfolio lenders.  I found a local bank that is lending 80% of appraised and has allowed us to buy for little money down.  I think the biggest thing is find a lender then find the properties that way when you find that next deal you are not spinning your wheels to find financing.

Raymond B. · Answer

@Justin C.,

Have you spent any time listening to the podcasts?

If not, click on the "learn" tab at the top of this page, and you could be spending many hours on the Information that is available.

Raymond

Justin C. · Answer

Ok, I guess its time for me to buckle down at the 9-5 and build up for the next opportunity. I've been reading yall's bios and it's been inspiring to say the least. Thanks again for your help!

Brie Schmidt · Answer

Conventional financing requires a 2 year history to use the rental income towards your DTI.  If your income is high enough to cover the mortgage on your duplex plus the new property then you do not need to wait 2 years.

If the lender is keeping the deal in house then it does not need to meet this requirement, but since over 90% of loan are sold on the secondary market it might be hard to find one who won't require it

http://www.freddiemac.com/learn/pdfs/uw/rental.pdf

Brant Richardson · Answer

There's no waiting period, it's all about your debt to income ratio.  You could buy another house every day for a week straight if you had the down payments and your debt to income ratio allowed for it.

If coming up with the downpayment is a problem you may want to consider waiting a year from your initial purchase and then buying as an owner occupier again to take advantage of FHA.  It is a pretty common investor strategy to move every year like that.

Kevin Yeats · Answer

Justin, other types of lender such as hard money lenders or the "softer" hard money with who I work will not make you wait if you have a good deal.  The down side is that they will require larger borrower equity stakes in the properties (ie lower LTV of 65%-70%).  Some of these lenders may allow a second mortgage.

Find the right deal at a good price (with enough of a margin that you are assured to make money).

Brie Schmidt · Answer

@Justin Couchman - Welcome and Congratulations!

If you plan on staying in your current duplex residential lenders will typically require 20% down on a SFH investment and 25% down on a multifamily investment.  They will also want to see rental income on your tax returns for 2 years before allowing it to help qualify for a mortgage.  So the beginning is the hardest but after that it gets easier!