How do I finance my third SFR?

Financing, Hard Money Lenders, Private Money
1

Hi all,
a little background first: Currently own two SFRs, one is being rented out, the other one I live in. I’m interested in purchasing another SFR to move into and rent out the one I’m currently in.

Because I live in Las Vegas, both of my properties are slightly underwater even though I paid over 30% down when I purchased them, however, the rent I would be able to get would cover the mortgage comfortably for both homes with a little to spare.

I was told that in order to be able to finance the 3rd home the following would have to occur:
Both current homes need to be right-side-up, minimum 5% down on new home.

My first question is, is it true that both homes have to be right-side-up? My credit score is well over 800 and I have a very secure job and no intention of letting either home go, but of course the lender does not know that.

Second question, let’s say it is true that both homes have to be in positive territory, I would first have to save about 20K to pay down on the loans, then save the 5% needed to pay down on the 3rd home. Is there another way to do this?

I want to take advantage of the low, low prices right now and don’t know if things will still be the same in 2 years when I have finally saved up all the money I need to save.

Thanks for your opinions.
Petra

2

You are half correct. To convert your current primary residence to a rental you would have to have a minimum of 25% equity in the property in order to qualify using the rental income. The property that is already a rental should be no problem. If it is on your tax return as a rental then you can just use the rental income or loss from the tax return. If you bought it last year and have not filed your 2009 taxes then you can provide the lease and most likely a cancelled rent check.

Your other option is to qualify for the new home without using any of your current rental income. If you do that then it does not matter how much equity you have in your current property.

3

Thanks for your response Christopher.

So, let’s say I would qualify for the third loan with just my regular income and about 15-20% down on the third house, I wouldn’t have to jump through all the hoops and pay my loans down first to get the third house, right?

My loan balance is low enough on the house I currently live in to be able to rent it out and cover the mortgage. The market value does not matter so much to me as I’m not doing anything with it.

Thanks again
Petra

4

Petra

I would start visiting some local banks. They will give you good terms for your next loan and you probably won’t have to jump through nearly as many hoops.