New member introduction: How can I finance my first deal?

Question

Hello everyone.

I'm new to real estate and the BiggerPockets community, yet I've done my homework and want to purchase a small multifamily and house hack it as my first investment. I live in Cambridge, Massachusetts and am looking to buy in the Greater Boston area. I ideally want to go for a FHA loan and use the projected future rental income to qualify for the mortgage. I read that about 70% of projected rental income can be used as income to help qualify for the mortgage. However, I just spoke to a local lender who told me that I would need 2 years of landlord experience in order to use future rental income to quality. So my question is: How can I qualify without having 2 years of landlord experience? I have excellent credit, but low income as I am a recent college grad working as a virtual assistant for real estate investors. Any and all advice would be greatly appreciated. I'm looking forward to your answers and hopefully some local connections as well. Thanks in advance!

Tony Angelos · Answer

@Blue Rybo-LoPresti First, congratulations on committing to building your real estate portfolio as someone recently out of college. Definitely the right step. If they said no, you just need to find someone who will say yes. Posting on here that you're looking for a lender in your area should solicit some responses of investor minded lenders.

Lien Vuong · Answer

Hey Blue - that might be a special loan program you looked at. The FHA program and/or MassHousing would not require something like that and you would be able to use your rental income to qualify for more funds. What might be more important is having 2 years of consistent income from the same role. I am guessing you're 1099 as your position in the VA field so you'd have to establish some consistency there.

Roger Evans · Answer

@Blue Rybo-LoPresti the local bank I talked to said the same thing along with attending a class on how to manage rentals, I went to a different lender and closed on the house two months later. A lot of banks will tell you no, just go finder another lender or better yet work with a mortgage broker! They literally get paid to get you a loan. Hope this helps

Blue Rybo-LoPresti · Answer

Hi Tony! Thanks for responding to my post. I agree that finding an investor minded lender could help a lot in acquiring my first mortgage. I will continue to reach out to the BP community and see what responses I get.

Blue Rybo-LoPresti · Answer

Hey Lien. Thanks for your response! Yes, I am currently a 1099 employee as a virtual assistant. As a recent college graduate I don't have 2 years of consistent tax returns to show lenders. I guess I just need to find a lender who will lend to me based of off my projected future rental income rather than my 1099 income. I see that you are an agent in the area, so I hope that we can connect and work together in our investment journeys. Thanks again!

Howard Herrington · Answer

Hello @Blue Rybo-LoPresti and welcome to BP.  There are a few mortgage lenders that use this as a qualification however most lenders do not require this and will use the projected rental income to qualify you for additional funds as Lien mentioned.

Jaston Robinson · Answer

@Blue Rybo-LoPresti Welcome to BP! I would agree about going to a mortgage broker. Such a great idea. In addition, I suggest applying for a first time home buyers program to help with the down payment.

I just closed on my house hack in October 2020. The combination of the first time homes buyer and a low FHA down payment is very powerful. I was able to purchase my home for only $1,600. If you have more questions please reach out!

Best of luck.

Michael Glist · Answer

So I would suggest finding a broker. One that not only knows investment properties but knows self-employed/1099 as well.

I think the issues you are going to find with your scenario is that you do not have 2 years income to show. Lenders will average out your income over the past 2 years for self employed and 1099 sub contractors. So if you do not have 2 years most will show your income as $0 since they cannot average it out over the past 2 years. This would mean that your rental income would need to cover not only the mortgage but also cover all of your personal debts (car, best buy, credit cards, etc.) as well. And even though most lenders may allow you to use 70% of the rental income to qualify for the mortgage they will likely NOT allow any of that income to be used as qualifying income for your personal debts unless you have the 2 years experience that they are talking about.

I hope this makes sense and if not let me know and I can try to explain it a different way.

Blue Rybo-LoPresti · Answer

Hi Jaston. Thanks for your response and congrats on closing on your househack!!

I am looking into the first time home buyers program in Massachusetts that can help with the down payment. However, I noticed that the programs in my area are city/town specific. At the moment I'm still deciding which city/town to invest in first since my hometown of Cambridge is extremely expensive and likely out of reach for my first investment. I'd love to connect and hear more about your experience.

Blue Rybo-LoPresti · Answer

Hi Roger. I'm glad to hear that you had a similar experience, and that it worked out for you in the end. I will reach out to some more lenders in my area and possibly a mortgage broker as well. Thanks for your advice!

New member introduction: How can I finance my first deal?

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