My credit is excellent. I have no debt other than my $1,700 mortgage on my personal home. I have applied for a $100K HELOC and have an additional$50K+ to invest that’s in the bank. I assume that a standard 80/20 loan for my first investment house is no issue. But how do the lenders handle multiple properties?
I would like to take my money and buy 4 houses this year in the $125K range to hold and rent. They would all need to be cash neutral or positive for me to invest. that being the case, do some lenders factor in the cash flow on the properties? If so, how are debt ratios treated?
Let me give you some “real life” numbers. My house payment represents about 24% of a $7K monthly HHI. If I purchase a $125K house using 20% down, I will add approx. $700 in “debt” alone to my monthly debt load. If my income is $1,000 on the property, I now have $1,700 + $700 = $2,400 monthly debt load. My new income will be $7K + $1K = $8K. My new debt load would be 30% ($2,400/$8,000 HHI). Assuming four equal rental purchases, my debt load would be $4,500 against HHI of $11K.
Do mortgage brokers/lenders take the cash flow of the properties into consideration or am I now at the limit of my ability to borrow? Remember, the additional debt burden I have taken on is being paid every month out of the rent, and the model assumes that insurance, maintenance, taxes and management are covered as well. If I can still borrow, how are the formulas now modified to accomodate the percentages?
I am a loan officer that specializes in investment and second homes.
First, credit is a major piece of the puzzle. With great credit you can put little down and may not need to put 20%. As far as the income from your rental, you are going to need to show rental history for most lenders but there are a few ways around that.
One thing that I just did for my own portfolio was to buy a “second home”, which is classified different than “investment homes”. The rates are lower, the down payment is lower. I bought a place in the mountains and just started renting it out on a nightly basis. We currently have it rented out every weekend for almost till March. We still get to take advantage of the appreciate, tax benefits, and get to use it for ourself on occasion.
I have seen lenders figure 75% of the rent as the amount they will offset the mortgage. In your example of $1000 rent you would get credit of actual collections of $750 per month to cover the $700 debt. They figure 25 % for collection loss and maintenance etc. With numbers like that you should be able to borrow on investment property for a long time. Some have limits on the number you can have loans on and some will have no limit. I like the idea too of borrowing all you can. There are lenders that will loan 100% on investor property with your scores and income. You can be creative too and get seller financed 2nds and sub2 deals. I am probably too aggressive and you are probably too conservative. Somewhere in the middle would be a good mix.
Hi there. I just started investing about a year ago but have purchased 3 houses for renting this year. What Tedjr said is exactly my experience. With all three lenders they figured 75% of the rent as my income from the rental. I have found that there are many lenders who will do 100% investor financing and those that don’t will often do an 80/15/5.
You may want to consider stated income loan programs if you feel your DTI is too high.
Yes 75% is the going pecent.
But if you’re buying new investment property, how does the rental income get determined, in the equation?
I’m doing roughly the same thing, with very similar numbers all around. I’m working with a national city lender (who seems to be great). He tells me that I have to own the homes for 1 year prior to counting the income (75%) so it shows on my tax returns. Also, he tells me I can only have 10 loans active at any one time. Maybe that’s just Natcity, but he says it’s across the board.
From what I understand there is a limit of 10 properties financed with a Fannie Mae/Freddie Mac backed loan. That is a limit placed by Fannie Mae/Freddie Mac so conventional lenders must follow that.
When you approach 10 financed properties you probably be better served by using an ALT-A product that most lenders offer that provides comparable rates to fannie/freddie but are underwritten by the lender. They will generally allow 19 or more props and also have programs that allow you to stated programs where you “state” income without providing documentation. This is helpfully if you can’t show a 1 year hisotry on a lease or are ultra aggressive on you REO tax schedule
The higher the score the smaller the difference in rate between fannie/freddie and ALT-A - many times they offer lower rates or reduced points.
As far as down payment you’ll have many options with your score