Financing Options When There Is Limited Employment History

[Lance Lvovsky]

Hi all,

I am curious to see what financing options I have. I recently graduated university, so I do not have much employment history. I currently have 1 property (this October will be 2 years) but am looking into getting another property. I have read about financing options and such on this website. I suppose I can contact community banks and see if they would be willing to give me a loan. I doubt any of the bigger banks (like a Chase) would give me a mortgage, right?

On a property between 50-70K, I can probably put around 20-30% down, if that makes a difference. In an ideal scenario, my rental income per month would be paying off my mortgage/loan as well. (I would have no other choice as I will be going to grad school and won't have steady income for a while). Hence, if I can have my property paying off the loan and maybe even cash flowing a bit each month, that would be perfect.

So any ideas? I realize hard money lenders would probably lend, but most likely it would be at very high rates. 

I don't know how common of a scenario this is, but looking to hear everyone's thoughts!

Thanks in advance! 

[Joseph Zanazan]

Fannie Mae and Freddie Mac have created a framework that defines what a legally funded mortgage backed security should resemble. This framework is called the Automated Underwriting System (AUS) and it generates a certificate every time a desktop review has been conducted on a mortgage file. The AUS is a hardcoded system that will initially put the file through the wringer, detecting any red-flags & criteria discrepancies that the borrower will have to be responsible for before receiving any credit. This template establishes a guide for all brokers and lenders, thus eliminating the taken chances and guessing games involved with submitting and processing a loan. The certificate gives a conditional approval and enumerates a set of stipulations that need to be satisfied in order for the file to reach full approval. Underwriters will interpret the AUS, waiving or demanding the conditions set forth by the system generated parameters. Employment is a very cert. driven condition and can be different from file to file. 

Rental income is a little different than income earned through regular wages or self employment. The two questions every underwriter wants answered is how long you've been in your current position and how many years you've been in the same line of work. Since the credit lending decision is made based on the borrower's capability to repay debt and not your tenant's, the bank will always take the conservative approach and take your gross adjusted income. This means after you write-off deprecation, insurance, interest etc on your rental property, the figure you're left with is what the underwriter will utilize as your earnings. 

To help alleviate some confusion as far as your rental income goes, its really simple. The bank's argument is that if your tenant loses their means to pay rent, it clearly automatically alters your capability to uphold the mortgage since you're solely relying on the collected rent to pay down your loan. After-all you're the one the bank has designated as the trustor and not your tenant. As far as regular income goes, wage earners who have been in their line of work for many consecutive years and just so happen to be in a new job can get away with only documenting two bank statements or only one year of W2s while a sole proprietor might have to provide personal & business returns for the past two years to prove that the earnings are in fact legitimate with a strong likelihood to continue for the years to come.

Unfortunately I'm not licensed in FL to discuss rates and payment with you on potential financing, probably will be very soon, however i would be more than happy to further clarify or answer any questions you might have. Cheers.