[note - edited for clarity]
I'm relatively new to REI and am unsure if I'm in any position to add a 2nd rental property to my portfolio.
Briefly, I lucked out and saw nearly %200 appreciation in just four years on my first home and used some equity to purchase a second home that is now my primary residence while I'm renting the other.
Both homes are single family and I have around %50 equity in my rental property (earns $10,200/yr) and %25 in my primary home. However, I qualified for both mortgages as a conforming/primary home buyer so I'm uncertain what to expect in the investment mortgage market.
I'm interested in a few multi-family properties (Duplex/triplex) in the path of major development that are on the market for less than $75K with around $10-15K in repairs. I believe I could earn at least $12000/yr on a new purchase with some DIY repairs - and as much as $20000 within 5 years.
I can document a gross income of $38/$45K for the last two years and a FICO around 720. My concern is that I am self-employed and I am currently staring at a DTI of %46 percent with just $5K in reserve.
How might I fare if I were to seek out a NO RATIO mortgage or another 'creative' product? Are such mortgages available fixed-rate?
I'm happy to pay down my debts and relax for a few years if this is beyond reach for now, but would appreciate any insight!
Are you accounting for rental income in your DTI calculations? You are allowed to use up to 75% as qualifying income. If you didn’t, this will have a positive effect on your DTI.
There are NO RATIO investment loan programs available with LTV/CLTV ranging from 95-100.
These programs are offered in either a short or long term fixed configuration.
The DTI doesn’t concern me as much as the reserve. DTI will go as high as 50% and you can use rents to support/supplement.
The reserve requirement will usually be 6 mos though and $5K can go pretty quickly with vacancies.
Thanks for the info everyone. For the first comment - yes, I have included %75 of my rental income in the DTI calculation. However, I will certainly run my FICO again before I proceed any further, as 720 was my middle score before making my 2nd home purchase last summer.
Thanks for the reserve comment too. I believe I read from one lender's site that %10 down and 6-month PITI was required for such a program. For the properties I'm looking at ($50 - 65K) the %10 down + 6 month reserve is between $7500 & $10000 - granted before closing costs.
However - would I also be required to document sufficient reserve to cover my other rental property?
Most of my $5K reserve is held in retirement funds, but still liquid - so I believe that's acceptable. With my last purchase (a conforming, primary home loan), I made a downpayment from a home equity line on another property which I understand will probably not fly for an investment property.
Finally, am I clear that all closing costs, downpayment, etc should be documentable income for "no ratio" & stated income type loans? i.e., no gifts or borrowed funds? If so, thanks to my new 1040-schedule E, at least I have a little windfall coming back from the Feds this year!
Down payment from a HELOC will fly - just include in your DTI.