Two convensional loans, one to live in and one rental at the same time.

[Michael Emmanuel]

Hello,

I have a preapproval for 3% down payment conventional loan, as I own no property.

Haven't found a house I like, I wanna be patient looking for my to live-in house, but I still wanna get a rental property where income covers all costs while looking for my own house.

My question is, can I get a normal 20% down conventional loan for the rental, and then later I get a conventional 3% down loan for my house? Or the 3% down conventional has to be for the first time ever property?

Also will I have to buy the first rental under LLC to qualify for the 3% down loan later? Can I even buy a rental straight under LLC?

Thank you very much

[Jason Wray]

Michael,

All good questions and good to ask up front to avoid issues down the road. First you can buy an investment property with 15% down up to 4 units using a Portfolio program. You can qualify for a 3% first time primary home loan either first or after you buy an investment property. That is a loaded question/answer because it does come down to DTI (debt to income).

If you can afford (2) homes you can buy an investment first and still qualify for the 3% down. The 3% down is geared towards primary home (owner occupied). If income is tight you can buy your primary home first and use a DSCR loan program secondly to buy an investment rental because DSCR "Does Not" use income or tax returns instead it uses the properties rents to qualify.

Best thing to do is talk to the Bank so that we can run the numbers up front so you know Max loan amount for primary. Then what we do is look at yout income after the New PITI payment to see what program to use traditional or DSCR for the investment. To be honest DSCR rates have dropped significantly over the last 3 weeks. Not to mention the FED meets this week and are expected to drop the FED rate by .25 basis points.

If you have any questions feel free to reach out I enjoy helping and making sure BP members are on the right path.  

[Derek Brickley]

Hey Michael!

Once you purchase a home regardless if it is 20% down or not you would then be capped at 5% down conventional. You could still potentially qualify for FHA 3.5% down, but if you are looking for true Fannie/Freddie financing then those are the guidelines they set. There are still down payment assistance options or portfolio products for lesser of a downpayment but your terms on those are worse. Purchasing the primary for 3% down first will lower the risk of running into DTI issues since you can use a no-income product for the investment later. If done the other way around, the terms of your preapproval will change.

With residential financing, you cannot purchase directly into a LLC (unless you look at DSCR) but that still would limit you to the 5% down conventional.

[Michael Emmanuel]

Quote from @Derek Brickley:

Hey Michael!

Once you purchase a home regardless if it is 20% down or not you would then be capped at 5% down conventional. You could still potentially qualify for FHA 3.5% down, but if you are looking for true Fannie/Freddie financing then those are the guidelines they set. There are still down payment assistance options or portfolio products for lesser of a downpayment but your terms on those are worse. Purchasing the primary for 3% down first will lower the risk of running into DTI issues since you can use a no-income product for the investment later. If done the other way around, the terms of your preapproval will change.

With residential financing, you cannot purchase directly into a LLC (unless you look at DSCR) but that still would limit you to the 5% down conventional.

 

Thanks for your response, Derek. That's informative, and creates more detailing questions. Is it possible to buy the rental first on LLC? Would that exclude it from the DTI calculation?I was thinking that purchasing the rental on LLC would not affect me getting 3% down conventional loan and would not affect DTI.

Thank you,

[Derek Brickley]

Even with a DSCR loan where the property is held in an LLC, the mortgage is still in your personal name. You would not be able to exclude it from your DTI until you filed with it on taxes (assuming you did so and did not report a loss). Assuming you are the single member on the LLC, if the property holds the LLC you would not be a first time home buyer in Fannie/Freddie's eyes.

[Cameron Green]

The 3% down conventional loan is typically for a primary residence, so you'd use that when you find the home you plan to live in. You can still get a rental property first, but you’d need at least 15% down for a conventional loan on an investment property, or 20% if you're aiming for better terms.

As for the LLC, it's possible to buy a property under an LLC, but conventional loans usually don't allow that—you'd need a commercial loan. Seasoning also matters: lenders will want you to live in the primary residence for a certain period before qualifying for another low down payment loan. Feel free to explore other loan options as well! I'm in the Cleveland area as well if you want to connect to learn more about this and the area specifically.

[Alfath Ahmed]

Quote from @Michael Emmanuel:

Hello,

I have a preapproval for 3% down payment conventional loan, as I own no property.

Haven't found a house I like, I wanna be patient looking for my to live-in house, but I still wanna get a rental property where income covers all costs while looking for my own house.

My question is, can I get a normal 20% down conventional loan for the rental, and then later I get a conventional 3% down loan for my house? Or the 3% down conventional has to be for the first time ever property?

Also will I have to buy the first rental under LLC to qualify for the 3% down loan later? Can I even buy a rental straight under LLC?

Thank you very much

 House-hacking is going to be the best option for you. I house-hacked several properties when I got started in real estate investing. You can house-hack every year. 

Find a good cash flowing property between 2-4 units in Cleveland. 

[Ashish Acharya]

@Michael EmmanuelYes, you can still use a 20% down conventional loan for a rental property and later qualify for a 3% down conventional loan for your primary residence. The 3% down loan is typically for primary residences, not necessarily your first-ever property, so purchasing a rental first won’t disqualify you.

You don't need to buy the rental under an LLC to qualify for the 3% down later. However, most lenders require you to buy the rental under your personal name, as getting a conventional loan directly under an LLC is usually not an option. You can transfer the rental to an LLC after the purchase, though this may trigger the due-on-sale clause, so check with your lender.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

[Samuel Diouf]

You can definitely start with a regular conventional loan for your investment property and then buy a primary after. 

It will be important that you make enough income so you're able to qualify for multiple conventional loans with your DTI ratio.

All conventional loans will look at your DTI. If you think you wouldn't qualify for the second property, you could buy the investment using a DSCR loan.