How is everyone getting so many loans?

Question

Hopefully not a stupid question. How is everyone getting there mortgages for rentals? What are they using to qualify you? Good credit obviously.

I guess why I'm asking, I just purchased my first home. I plan on living in it for a bit to start, eventually use it as a rental/flip. I have 20-30% for a downpayment for another house for a rental/flip as well. But I dont know if I can get another loan?

Basically looking for any information to do with this LOL.

Thanks in advance..

Jeff S. · Answer

You have to get out and beat the pavement. Be prepared to come up with 3 years tax returns and a full financial statement.

They will qualify you and answer all your questions. Folks on here will likely offer more info for you. Good luck

Dale Osborn · Answer

Any time you are dealing with bankers or loan officers, plan on backing up several times and butting your head into a brick wall to get things accomplished. You are put through a financial strip search to show you really do not need the loan, but want it anyway to purchase the investment property. Each property should be able to stand alone - you do not need to put other funds into it. When they send it to the underwriter stage - plan on jumping through some additional idiotic hoops or hurdles to get to the closing table. If they start talking about needing to develop a "relationship" with you, make sure all your funds are secure and you have a button closing the pocket your wallet is in. All in all, each experience you have gets you ready for the next round of negotiations for your next property. Enjoy all of this and someday you can look back and see it was well worth all the efforts you had to pour into the project.

Lori L. · Answer

Tyler, I might have a unique situation but I'm employed full-time and that's the income that they're considering that covers all expenses for both properties.  I'm just starting out with this too (one condo owned and currently have a tenant renting it and purchasing a second sfh to live in/flip).  I haven't had to be too creative with my finances.  Yet.

Tracey Williams · Answer

Jon is correct 100%.

I went to two local banks last week and the answer is the same as Jon as stated - great income, high credit score, 2years tax return for rental income to be considered, 20-25% down payment and you'll need to show all bank details for the past 3-6 month ( business & personal)

Good luck!

Jon Holdman · Answer

I think you're referring to cash reserves.  Yes,  you need to show bank statements (or some other financial institution like a brokerage account) showing sufficient cash reserves.  401K accounts can be used, too, though there is a discount factor to account for taxes and penalties.   IIRC you can use 60% of vested 401k or IRA accounts.

Tyler J. · Answer

When you talk about PITIA, do I just need to have the amount to cover the PITIA in the bank?

Jon Holdman · Answer

The basic qualifications are roughly:

For mortgaged properties 2-4:

25% down payment, based on purchase price or appraisal, whichever is lower.  Maybe 20% for some lenders.
6 months PITIA (A= anything else like and HOA or MUD) for the new loan plus 2 months PITIA for existing properties
680 or so mid credit score
DTI < 45% or so.  DTI is all debt payments, including the new mortgage, any existing ones, and all other debts that have more than six (?) payment remaining.  Income is your gross income.  Generally, rental income will not be counted until you have two tax returns showing rental income.

Once you have two years land lording experience, you may be able to include the income on the new property.  "Net rental income" is estimated at 75% of the rent less the PITI payment.  For existing rentals, they will want to see your tax return.

DTI gets a little complex with rental.  Start by ignoring both the rental income and the rental mortgages.  Add up all your other debt payment, including your primary (its nothing but a liability.)  Add up all your income.  Again, you're ignoring rentals for both of these numbers.  Now, add in the rentals.  For the existing ones, look at your schedule E.   Income is line 22.  Add back depreciation from line 20.  That's your real income or loss from the property.  If its positive, add it to the total income. That improves your DTI.  If its a loss, add the amount of the loss to your debt payment.  That hurts your DTI.  For the new one, use the (75%*rent)-PITI to figure the estimated income or loss.  Add a positive amount to income, add a loss to the debt.  Now figure your DTI.

For properties 5-10, you'll need a higher down payment, a higher FICO, and six months PITIA for all properties

After 10 you're looking at commercial financing.  Only a few banks will do this, but they are out there.  You're looking at slightly higher rates and shorter terms. 15-20 years.

Tyler J. · Answer

How did they estimate covering your motgage with your regular income? How did they figure what your mortgage amount for the new houses? Did they add in your other bills and such for your primary home?

K. Mitchell · Answer

Local banks and credit unions are making investor loans in the market I invest in. They are more in tune with the market and are very comfortable lending given the decline in values and increase in rents. In fact, several of the local loan officers are RE investors themselves.... You might ask around to see who fits that profile in your investment market and then call a few of them. They are usually not hard to find.

Lori L. · Answer

Excellent credit, enough income to cover all mortgages at the same time, and cash down payments were my ticket . They won't count my rental income until I have two tax years proven history.

I talked with several bankers to determine what would work best for my scenario.

How is everyone getting so many loans?

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