What is the best way to have multiple properties without killing my credit score? Would selling homes to my LLC help? If so, how do I establish credit with my LLC?
The best way is to pay the mortgages on time. Multiple mortgages have a positive effect on the credit score. The more you have and the longer they stay on the report (paid on time) the higher the score goes.
It’s not a problem to pay on time and my credit score is fine for now but the debt to credit ratio is what I am concerned about. Since the properties are not shown as income on the credit report. They are shown as debt.
Everything is shown as debt on your credit report because it IS debt. If they are income producing properties they should be treated as such by any lender you deal with when you apply for another loan down the road, you just need to prove your income for the properties. Your credit report has nothing to do with your income, it only deals with the debts you have and your payment history.
mortgages dont hurt your credit report. It doesnt matter if you make a million per year. Income is not taken into consideration with your credit score. The lender does your dti when you tell them what your income is. If your properties are rented then they will take usually %75 of the gross monthly rent to add towards your income for dti so as long as you are buying properties right you dont have to worry about it.
So what I take from this, is that my lender should be aware that they are rental properties. I have a small amount of cash flow from them but nothing substancial.
Thanks
Hey they are covering the mortgage and expenses so they aren’t a liability…even if the income isn’t letting you retire early.
Nice to know. Thanks for the information!
Debt to income is handled by the banks will take 70% of the rents and add it to your income. When you get ready to lock the loan your mortgage broker will ask for signed leases for each of your properties.
For instance if you have 10 properties that have mortgages of $500/month each you have monthly debt from them of $5,000/month. But they are leased for $1000/ month each. That means that you have $10,000/month income that the bank will recognize 70% of or $7,000/month. That takes debt to income right off the table.
That is why it is important to deal with a mortgage broker that understands real estate investing. He needs to know to ask that question.
the standard loan app (1003) has a place to list all real estate owned and any income produced. The loan payment amount will be pulled directly from your credit report and you supply the rents. If you are doing full doc, you will be probably be asked to supply leases and/or your ScH E from your 1040 tax form.
pulling a lot of loans quickly can knock you score down but its affect is seems to last less than 6 months months. I’m currently servicing over $2M in loan on rentals but still have a credit score in the high 700’s, BUT I have a credit history of nearly 20 yr, zero late payments or other dinks.