Help on information about Pre-Approvals

[Amiel Bituin]

Hi BP Community! 

I am looking to buy my first rental property around June (at the earliest) time frame and was searching for some answers to help me get started. I am looking to get some help and information of how pre-approvals work if I am planning to buy a property that is out-of-state. A quick background about me, I am currently traveling for my job on per diem and will be returning to the Boston area at the end of this year. But with my current career goals I am looking to pursue other opportunities outside the Massachussettes area and maybe live in another state. I do want to get started on purchasing my first home since I believe I have the capital to put down but my issue is where to purchase. I've considered the Philadelphia area, and Northern New Jersey area but more of a investment property and not a house hack. I chose these areas because I have family and friends in the area for any worst-case scenario that happens to the property. I do plan on getting a property manager but that is something I will be planning for after I understand how pre-approvals work. In addition, I do not particularly plan on moving into the Philadelphia or Northern New Jersey area unless there is an opportunity that I like there for my career.

Thank you for the time an help in advance everyone!  

I am willing to also talk more about the situation if there are lenders out there willing work with me.

[Eric Yu]

Quote from @Amiel Bituin:

Hi BP Community! 

I am looking to buy my first rental property around June (at the earliest) time frame and was searching for some answers to help me get started. I am looking to get some help and information of how pre-approvals work if I am planning to buy a property that is out-of-state. A quick background about me, I am currently traveling for my job on per diem and will be returning to the Boston area at the end of this year. But with my current career goals I am looking to pursue other opportunities outside the Massachussettes area and maybe live in another state. I do want to get started on purchasing my first home since I believe I have the capital to put down but my issue is where to purchase. I've considered the Philadelphia area, and Northern New Jersey area but more of a investment property and not a house hack. I chose these areas because I have family and friends in the area for any worst-case scenario that happens to the property. I do plan on getting a property manager but that is something I will be planning for after I understand how pre-approvals work. In addition, I do not particularly plan on moving into the Philadelphia or Northern New Jersey area unless there is an opportunity that I like there for my career.

Thank you for the time an help in advance everyone!  

I am willing to also talk more about the situation if there are lenders out there willing work with me.

Welcome to the journey! With a pre-approval, a lender will be able to walk you through everything required. Before you're ready for a full pre-approval, what you can do is figure out your debt & your income to get a ballpark price you can buy with. 

Example: So let's say you have $500 in debt monthly, and $5000 in income monthly. Your Debt to Income (DTI) is 500/5000, which is 10%. Lenders will allow you up to 50% in some cases, but to be save, I'd use 36% as the number. That means your maximum debt you can have is 36% of your income. In this case, $1,800 (DTI x Income = 36% * $5,000).

You can get $1,800 debt total & you already have $500, so that means you're left with $1,300 that you can use toward purchasing a house. 

If you enter that amount on a calculator online, you should be able to figure out your purchase price based on current rates. 

Hope that makes sense!