Investing in St. Louis and looking for a credit partner, as my income to debt ratio does not allow me to invest in more properties. Looking to do at least 7 more. Or does anyone have a suggestion on how others are able to qualify for conventional loans on so many properties.
if the property is rented, 75% of the rental income (gross rental inc) can be added to your income by the bank as a qualifier (before you own it)-- this could help you work out your ratios better. but obviously you’d need some extra creativity for flipping in this scenario.
cubebsis is correct. 75% of the rental income can be used towards qualifying for the loan if you are buying at a large enough discount it may not have any affect on your DTI. Have you already been declined for another property? You need to sit down with a mortgage professional that can help you plan out your strategy for the next seven properties. Hopes this helps.
2 additional concerns:
1. Using Rental Income -
A. Conforming “written” guidelines state that in order to use SUBJECT property income at all you must have a 2 year history of owning/managing properties. However, most conforming loans are run through an automated underwriting engine which can deviate from the actual published guidelines. In the past, from time to time those engines would not ask for the 2 year history even if income from the subject was being used. This was usually the case for low ltv, high assets, or less riskier scenarios. On June 1, 2008 Fannie Mae just released an updated version of their automated undewriting engine which most lenders will use. The new version has many changes to it which will help analyze risk and produce more conserative approvals. I couldnt tell you at this point if the new version of automated underwriting engines will waive the 2 year history requirement.
B. Another challenge with using rental income is how a lender interprets the term “SUBJECT” property. If you are submitting several deals to them at one time, would ALL those be considered SUBJECT properties. Thus, if you didnt have a 2 year history of management then none of the income would count. That’s a bit on the conservative side but some lenders do think like that. On the otherhand, some lenders could look at the group of files sent in and say only the file that is open is SUBJECT with the others being additional deals but counting the rental income.
C. As far as what to use for rental income, 75% is not a guarantee. If your loan is being undwritten by an automated undwriting engine then the approval will dictate what is needed. The majority of the times the approvals state that if you’ve owned the property greater than 1 year then you’d use Schedule E from the past 1 or 2 years. If the property was owned less than 12 months then you could use 75% of the lease. This is basically what the actual written guidelines say as well. However, in the past some lenders have allowed brokers to use all leases even for properties owned greater than 12 months. Guidelines are changing constantly in today’s market so finding one that still does this could be challenging. (Again, keep in mind that if there is no 2 year history of rentals that lender may not use the SUBJECT income)
2. Maximum # of Financed Properties -
Under conforming guidelines you can only have 10 financed (non commercial) properties. You indicated that you want to do 7 more. How many do you currently have? If you take on a partner then they how many do they have?
You may want to look at commercial financing or a blanket loan for the properties you already have.
If you have solid income, a 2 year landlord history, and the properties cash flow decently then you shouldnt have an issue with the properties pulling down your debt to income ratio. Conforming may still be ok.