First Time House Hacking-Financing Question

[Matt Thielke]

Hi,

I own a condo that I’d like to rent out. I’d like to buy a 2nd property and use that as my primary residence and then rent out my condo. When I apply with a bank to get qualified for the 2nd property I know I’ll need a signed rental lease agreement on my condo but do I also need to have experience renting out my condo? I’ve heard some people say that you need to show the bank at least 1 year of rental history before you can qualify for a loan for a 2nd property, but I’ve also heard that you don’t need that rental history. Can anyone help clarify this for me?

If I do need to rent my condo for 1 year to show rental history is my best option then to move into a cheap apartment for a year while I rent out my condo and then buy my 2nd property? I'd like to get into RE investing but I don't have the 20% down payment needed for investment properties so I think my best bet is to "House Hack", buy the properties as my primary residence then rent them after I live there for a couple of years. I'd like to do this strategy 1-2 more times if everything works out well. Notes about my condo: My total PITI & HOA payment is $1,200/month and I can rent my condo for $1,800/month, for a new profit of $600/month.

Thanks for the help!

Matt

[Jared Bouzek]

@Matt Thielke You do not need landlord experience to count your rental income. When rental income does not show on your tax return, Fannie will take the gross rent per your lease and apply a 25% vacancy and then subtract your PITIA as you mentioned above. Whatever is left will be added to your monthly income/liabilities. You will need to have a lease signed and security deposit check cleared into your account prior to closing. You will also want a lender who has more than two brain cells who can handle the idea that you are purchasing a new primary and keeping your old one as an investment. Believe it or not, some lenders struggle with this.

If you're looking to minimize your down payment when you go to purchase your new primary I would recommend you look at the Fannie Mae HomeReady program which is specifically for owner occupants and would allow you to put down as little as 3% on a single family and get some pretty phenomenal rates. HomeReady has income caps and originally you couldn't use it if you already owned another property. Both of these guidelines were loosened about a month ago. Income caps are a little higher in some areas and you can now own another property and still do HomeReady. If you get pushback from the lender on this, find another lender who knows their guidelines.