Financing a second property

[Ross Bernard]

I recently purchased a 3BR house and am renting two of the bedrooms. The PITI is $900 and their combined rent is $945. My income from my job is about $2300/mo after taxes. My question is, how difficult will it be to obtain financing for a rental property? My (very limited) understanding is that the bank will ignore my current rental income and potential income from the second property. So if I had a $900 monthly payment on the second property they would see it as $1800/mo in mortgage expenses versus $2300 in income and deny the application correct? I feel like I must be missing something.

[Eric Black]

Hi Ross,

You are partially correct. MOST lenders will not give you credit for the projected rent until you have been a landlord for at least 2 years, and at that point they'll count 75% of projected rents as income.

That being said, if you can talk to a lender and see if they deal directly with Freddie Mac, they may be able to use the rental income. Also, talk to small local banks in your area. While they still have to follow certain federal guidelines they also have flexibility to come up with their own guidelines in other areas. My advice would be to be well prepared, have nicely organized documentation on your current property including a report that shows current expenses and income, and take that to local banks to see if anyone will work with you.

Best of luck!

Eric