How can a younge investor finance their first property

[Cole Black]

Hello guys and girls, I am just trying to educate myself a bit on financing. I am 19 years old looking to invest in real estate in the future (when I am educated enough). I have a good credit score as I never miss payments however my problem with the bank is I don’t have the “history” to be able to get a mortgage. I also don’t have much of a down payment.

Anyways I feel as tho my age might deter investors and banks. I have started a few successful businesses and have been constantly improving my financial literature after reading rich dad poor dad.

I am wondering what my best bet is to get financing when the times come. I was hoping to start a corporation when I get into real estate (for tax reasons and to protect myself a bit). Could anyone who has there real estate business incorporated answer this question: was it hard to finance your first deal and how did you end up doing it?

Any response is appreciated!

[Kevin Romines]

As @Bjorik Mutize mentioned, the most common way that someone gets into investing is by utilizing an FHA loan to buy a 2-4 unit property in which they will live in one of the units for at least 1 year. By doing this, you will have a 3.5% down payment. This is the least down payment you will find other than a VA loan for the same 2-4 unit which you can get 100% financing on?

Your age will not be a road block to you with any lender. Once you are 18, you are legally able to enter into a contract, that is the only age limit, and you are beyond that now, so that is not an issue. Don't forget, you have the power to negotiate that your closing costs are paid by the seller. I would do that so the only thing you need to bring to the closing is the 3.5%. 

If your credit score is 580 or better, you can do this loan with as little as 3.5% down. If your score is less than 580 but at least 500, there are lenders that will do this loan if you have 10% down. So in the end, depending on your down payment, even with rough credit, this loan can still be done.

Debt ratio should not be an issue on this loan so long as your current debt ratio doesn't exceed 50% of your current income. The reason that the debt ratio most likely wont be an issue is that you get to count the existing rents or if vacant, the market rents per the appraisal on each of the units. The rents should result in little to no impact on your debt ratio, or it might even give you a little more income. 

In my opinion, this is one of the best ways a starting investor can buy a property. I'm working with a young guy right now, that bought a duplex 1 year ago using the FHA loan. He wants to now buy the duplex next door and has it under contract. I confirmed with my underwriting staff that if I refinanced his existing duplex out of the FHA loan and into a Fannie Mae loan, that would clear his ability to then buy the duplex next door using an FHA loan again. You can typically only have 1 FHA loan at a time. All this is in progress and the loans will close in June.

I hope this helps?