Income does not qualify for a second property

[Renee Z.]

Dear All, 

I know this must be a newbie question: how to qualify for a loan on a second or even 3rd property when your income is not great. A little back story here: 

My husband and I bought our first home, a $130,000 one-bedroom condo back in the beginning of 2016. I was a part-time employee who just finished graduate school with student loan, and my husband was a PRN employee in a hospital supply chain. Our income was really low, credit score was pretty garbage and we had nothing in the bank, so we got an FHA loan, co-signed with my mother-in-law and put 3.5% down with a 3.75% fixed interest rate. My parents-in-law also helped a lot with down payment and closing cost. It was a great little place, the only reason it had been sitting on the market for 4 month before we made an offer is because the pictures were pretty ****** and the agent was not very reachable. So we jumped on it.

Not long after we got that place, we both became full-time, paid off my student loan and we are recently looking for a second property to buy. Ideally we want a place similar to a duplex, such as a place that has a independent basement with kitchen and full bath that we can rent out to help with the mortgage, we would move in there of course and rent out our condo. 

We just found a property around $380,000 that are very close to where we are now, 3 bedrooms+1.5 bath and a basement we can put a little work in and rent out. Problem is that we have been putting extra money into the principal of our condo, aiming to refinance, get rid of the mortgage insurance and get my mother-in-law's name off, since it makes it harder for her to get a loan if they ever need one. So our saving is garbage. Although my father-in-law is willing to lend us money for down payment, and our credit score has sky rocketed, it is still a big stretch because of our income. 

According to our mortgage agent, since we are not first time home buyer, we need to put minimum 5% down with an FHA loan. Even if that's not a problem, our $4,800 monthly income is too low. In order for the rent from our condo to be counted as source of income, our condo has to be at least 100 miles away from this new property, or we would have to rent out that condo for at least $2,500 a month with an executed lease, which is impossible. We pay $1,300 monthly for the condo including condo fee, mortgage, mortgage insurance and taxes, etc. We were hoping to rent it out the same amount and break even.

This is where my question at the beginning comes back, and I might not be the only person wondering about this. We are not going to stop at our second property. Our plan is to rent out our condo, buy a second property, move in, rent part of it out, stay for at least 1 year, save up and move onto our third property the same way. But according to our mortgage agent, the only way to do this is to spend years saving up for a 20% down payment on a conventional loan, or get a promotion with a substantial raise, which could also take years. Is there a creative way around it? 

Thank you all for your time. We would appreciate some of your thoughts on this

Best,