I have 20% down payment but can't finance the rest | Rental property

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I have 20% down payment but can't finance the rest | Rental property

Robert G.
Las Vegas, NV · Member since 2013 · 14 posts · 0 votes

As title reads, I have the cash for 20% down payment on a rental property but can't finance the other 80% because I just maxed out my ratio as I just bought a house.

I was thinking of purchasing a rental property with an existing rental agreement in place. Looking for a creative way to finance something. Thanks again!

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Gerald Peters
Investor · Huntsville, TX · Member since 2015 · 43 posts · 65 votes
8y
Try other banks? I’ve bought 2 houses in 1 month using local bank and my income was less than $50k at time.
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  • Robert G.
    OP
    Las Vegas, NV · Member since 2013 · 14 posts · 0 votes
    12y

    Bump

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  • Account Closed
    Rental Property Investor · San Diego, CA · Member since 2017 · 25 posts · 6 votes
    8y

    I am in this same spot. I just bought a duplex (as a "house hack") in San Diego for 600k using my VA. My credit is fine but having just bought the duplex, my debt to income ratio is now not what they want to see obviously. I am now looking to add performing, no work needed rental properties. I have a cash investor that will go the down payment if I split the deals with him. I am fine with that arrangement but was hoping some of you with experience can give me some ideas on how I can pull this off or if I am nuts. Thank in advance for any input.

    1Reply
  • Gerald Peters
    Investor · Huntsville, TX · Member since 2015 · 43 posts · 65 votes
    8y
    Try other banks? I’ve bought 2 houses in 1 month using local bank and my income was less than $50k at time.
    1Reply
  • Albert Bui
    Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    8y
    Originally posted by @Robert G.:

    As title reads, I have the cash for 20% down payment on a rental property but can't finance the other 80% because I just maxed out my ratio as I just bought a house.

    I was thinking of purchasing a rental property with an existing rental agreement in place. Looking for a creative way to finance something. Thanks again!

     HI Robert,

    The strategy may sound complicated on how to accomplish your question above but I assure you its very simple.

    You can either increase your "income," or you can decrease your liabilities or expenses that are factored into your DTI equation.

    If your "home," is the biggest expense and it is crushing your DTI ratios then you can convert your home into a rental so that income can be used to offset your monthly mortgage (AKA you convert a liability into a potential asset that was taking up your borrowing power prior).

    You can payoff or down your other liabilities or credit cards.

    You can increase your income or Bottom number. (DTI = expense / income)

    You can do a combination of the above to create room/space/borrowing power.

    In general you are limited to 45-50% of your gross income or bottom number for max borrowing power that you can fill up with your liabilities (home, car, credit cards, other loans, or expenses, etc).

    The other creative way is to add value to your existing home by adding units (conversion from SFR to triplex) so you can use the other 2 legal apartments rental incomes to help increase your bottom number (income).

    In the above conversion to a rental scenario you may have to move out and live else where. Just make sure if you do move out that you dont move into another place with as "high," of a rent or mortgage because then you're back into a high expense/ high DTI scenario that you were in prior.

    Hope that helps, let me know if you have any questions.

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  • Kevin FoxPro Member
    Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes
    8y
    Originally posted by @Account Closed:

    I am in this same spot. I just bought a duplex (as a "house hack") in San Diego for 600k using my VA. My credit is fine but having just bought the duplex, my debt to income ratio is now not what they want to see obviously. I am now looking to add performing, no work needed rental properties. I have a cash investor that will go the down payment if I split the deals with him. I am fine with that arrangement but was hoping some of you with experience can give me some ideas on how I can pull this off or if I am nuts. Thank in advance for any input.

    Hey Bill

    Do you know if your lender is using the rents from the unoccupied unit in your duplex as qualifying income?

    If not, that should help some.

    Also check to see what their DTI cutoff is. Some lenders will cut off DTI at ~49%, while others are willing/able to stretch that to ~54%. If yours is toward the lower end of that range, looking elsewhere may open up some new doors.

    Another potential workaround would be to look at 3 to 4 unit properties. Many lenders will allow you to count 75% of rents toward qualifying income, which can certainly make a difference.

    Let me know if you’d like to chat about your situation further. Happy to refer you to some lenders who have found solutions for past clients in similar situations. 

    0Reply
  • Account Closed
    Rental Property Investor · San Diego, CA · Member since 2017 · 25 posts · 6 votes
    8y

    Thanks Kevin, much appreciated. 

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    8y

    Why won't a bank lend to you? Because there's too much risk involved.

    Perhaps it would be wiser to continue saving up while looking for the right deal. Instead of spending 20% on a nice home, maybe spend that 20% on a fixer-upper or foreclosure that you can pay cash, renovate, and make some real money. How about owner financing?

    I know you hear a lot of people buying like crazy right now but I wouldn't be surprised if over half of them are out of the game in 10 years. Slow, steady, and smart wins the race in real estate investing.

    The DIY Landlord Book4.7243 Reviews
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    0Reply
  • Tahir Masroor
    Lender · Smyrna, GA · Member since 2017 · 47 posts · 3 votes
    8y
    Can you shot me an email? I’m interested in taking a review if we can fund this one. Pm me.
    0Reply
  • John S.
    Lender · Chicago, IL · Member since 2015 · 71 posts · 19 votes
    8y

    If you can email me I think we can help you fund this also.  Have a great day!

    0Reply
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