If I was to look at acquiring multiple rental properties with positive cash flow of $250-$400 each through Section 8 or other govt guaranteed payments, how can I get approved for multiple mortgages.
Let’s say I look to acquire 10 properties in the next 12 months. Is this possible to continue to gain a new mortgage on a property each month or so? I have a credit score of about 655 and do have access to unsecured loans for say $10k-$15k.
how do you go about trying to use as little of your own money to continue to qualify for loans on these new properties? Let’s assume most of these properties are currently in rentable condition and recquire no rehab to them.
You won’t have issue with the number of properties - there are mutiple lenders who will continue to step up until about 20. At that point you may have to start acquiring props under commercial loans, enven if the props fannie/freddie qualify (meaning less than 5 units).
Plan on needing to put between 5 - 10% down and good luck
Well i guess what I was referring to was the way typical home owner mortgages are handled vs. an investor…
The loan officer tells me I am pre-qualified up to $120k w/ 5% down.
This works great if I am going to buy one house and not buy another without selling the first. So what are they going to say when I try to get a loan on another house while I am rehabbing the current one?
Granted the houses I am buying are at $40k-$60k purchase price, but still… Are they going to say we can’t fund you for a 2nd or 3rd house because I can not show income enough or assets to use as collateral?
I was hoping to try and acquire and hold one rental property and continue to rehab one house at a time and then maybe after 2-3 rehabs keep another property. How do I show I can afford this when I only recently occupied the rental unit and maybe have 1 or 2 month’s rent to show?
You hitting on one of the major key drivers underwriters will look at within your mortgage application - debt to income.
More than likely if you monthly expense exceed 50% of your documented monthly income you will need to apply for a limited or alternative document mortgage. This allows you to either eliminate (no doc) income from the application or simply state (stated) income without proving.
From an ethical standpoint it is better to go no doc if the income does not exist, but it is not at all uncommon for an applicant to inflate income to support their debt load and then go stated for rate/ltv reasons.
With reasonable credit you will have issue. Hope this helps
HML are great - but I think many investor miss the boat on stated or no doc programs. Nearly all investors has a difficult time hitting debt ratio with tax schedules and most have some trouble using 75% of rental agreement.
The 1st alternative should be no doc or stated programs, which usually are only 1/2% or so above conforming rates. This programs also generally allow for LTVs up to 90% LTV consistently and sometimes more.
Again, HML lenders are a fantastic tool for investors, but not necessarily the first alternative when proving income gets tough.
So would the 75% of gross rental income be applicable when purchasing your FIRST rental property or when purchasing your second and they look at the exisiting rental property and its rental income?
On the no doc or stated income loans. That is where I sign documents saying I have such and such income without supplying pay sutbs or tax returns, etc. right? In which case I would claim that my income is my salary + the income of the property I am trying to purchase. Correct?
You can use the 75% of rental income on non-conforming deals AND you have to have the lease for a year. With freddy/fannie (best rates) you must use your schedule E, which is usually a deal buster (or you need a better accountant…)
You’re exactly right - stated programs allow you to simply state your income without providing verification. No docs or No Income loans do not even accept information pertaining to income - so no debt ratio - so no problem.
Even dinged credit can go stated, you have to be reasonable to go no income and you have to be fairly strong to go no doc.
It entirely possible to have low to mid 6% 30 yr fixed with a stated or no doc n/o/o loan, where I don’t believe hml will be able to match. Again, no slight to hml
Well it would seem I need to start investigating nodoc and stated income loans. They sound like a deal when trying to go for multiple-dwelling unit (MDU) properties. Especially when I can find one or two that have 10%-12% cap rates.
Call me a slum lord if ya must, just as long as I bank a cool 1k-3k a month on a 125k property!
Just to be thourogh - the rates I refered to were for 1 - 4 unit n/o/o. Go over 5 and you’ll be looking at commercial loans, which can still be done stated or no doc - but generally you’ll be looking around 7% and they are a little more credit sensitive. Most times more down is required as well
Sean - I must admit i have never explored the no doc or no ratio option. I have heard about them, but never enough to research more. Apreciate the info, I will look deeper into that type of a loan as an option. If what you said is correct, and I assume it is, the percentage rate is much better than what any HML will give me.
what about closing costs, are they higher than conventional? I can’t imagine they are as high as HML.
Financing is usually 10 properties and 1 primary per investor but there are 100’s of investors and as long as there is a positive cash-flow it wont count against your DTI, My suggestion is keep the cash in the bank because most lenders like to see at least 6 months of reserves, but there are some products which don’t care.