WatchCan anyone tell me the requirements for getting a loan for purchasing investment properties given the following:
1. Assuming I already have a recent loan for my primary home that puts me at 40% DTI (729k/4.25% 30 year fixed loan, made a 20% downpayment), absolutely no other debt, everything else other than the home loan is PIF. This is the home my family and I plan to live on for the rest of our lives.
2. 815+ FICO scores on all 3 bureaus
3. I still have around $600k in stocks/cash investments that I'd like to diversify into some investment properties.
4. The scenario I'm looking at: there are 2 different parcel #s being sold together in the Los Angeles, CA 90042 zip code (one APN has 2 rental properties, the other APN has 4 rental properties). I'm assuming this would require 2 loans (one parcel # is being sold for $210,000, the other for $440,000, for a total of $650k)--they share a common driveway, and will only be sold together.
5. The properties collect about $4,800 gross rent per month, and all 6 rental units are all fully occupied with leases.
6. I'd like to put 30% down ($195,000) and get a 30 year loan on these total 6 rental units. Given even a 5% interest 30 year fixed loan for the rest of the $455,000 (though i would expect better rates), I would have a $2,442 monthly mortgage payment. Even adding insurance, taxes, maintenance, and loss of occupancy %, the gross rent would pay for it all, and I would still have a nice monthly profit left over (the profit will of course increase over the years as the rents increase and my payments stay fairly fixed).
My questions are these:
1. How do lenders in today's lending environment qualify a new income property borrower that's already at 40% DTI on their primary home, but have 30% down for income properties that have a positive carry?
2. What kind of rates are available for investment properties in the Los Angeles 90042 zip code?
3. I remember reading that fannie/freddie have a limit of 4 non-owner occupied loans per investor. So, in this case would this count as 2 loans (2 assessor parcel #s), or could it be combined into 1 loan somehow, since they share a driveway and are being sold by the same owner? The reason I'd like to know is that I'd like to continue buying more positive carry properties like this, leveraged with 30% down loans instead of just buying outright with cash.
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I too am interested in this. Can anyone shed some light? My loan officer told me that it cannot happen if I were to purchase an SFH for rental purposes. They will not consider rental income of the subject property.
What about a multi-family complex?
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Scottsdale, AZ
robertoaribas's website
Not impossible at all, given the facts as you state them. the difficult part, is that most lenders will not count rental income from the being purchased property. You will try to justify counting it by providing all existing leases, and getting a real live underwriter to look at your particulars. The 30% down, and great credit scores will help, your current 40% dti doesn't help, but should not be an insurmountable hurdle. You may need to apply at multiple local banks, to get someone to go off the 'check the box' program.
AND, 5% is probably optimistic, be prepared to be happy with even a 6% mortgage. This is not fannie/freddie territory, so you will be paying a premium. [historically, still a very good rate for investment properties however]
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Pasadena, CA
I listed the scenario above in order to evaluate my best option. The reality is that my wife, daughter, and I have been living in our paid-off Condo in a nice part of Pasadena, CA (Madison Heights). I bought that Condo from a Fannie Mae foreclosure in 1998 for $165k...now it's worth around $470k...based on recent sales by several neighbors.
We've been sitting on the sidelines, waiting for the higher-end homes (around $1 to 1.5 million) to come down (to $750k to $1.1 million) from the bubble state that they've been at. My wife is pregnant with our second child so we will no longer fit in our nice condo, and ideally we'd love to purchase our home next year. We can sell our condo early next year and rent until 2012 if absolutely necessary, but we've already been waiting for this bubble to pop since 2006. Our patience is running thin, and the government and banks don't appear to be in any hurry to kick the squatters out of the homes they lied/deluded themselves into with Option mortgages and the like.
While we've been waiting for our higher-end home to drop to reasonable levels (I'll be happy when they get back to 2002-2003 prices), meanwhile, the low-end has come down to the point that it's more expensive to rent than to buy (as I can see by the sample investment property I listed in the Highland Park area of Los Angeles...5 minutes from downtown L.A.) I have no interest in living in sub-$400k SFR areas, but do see the potential for those areas as investments.
So, is it easier for me to purchase the above properties, claiming that I'm going to live in one of the 6 units, with my 0% DTI (no mortgage & all debt is paid in full every month), then 6 months to 1 year later, purchase my high-end home? That way, I would assume I would qualify for a Fannie/Freddie government 4.2% loan on these properties & on my higher-end home. Then, since we have more than 25% equity in the rental properties, I can use the 75% of the rental income to offset the PITI...which would actually leave me at 0% DTI again for qualification purposes of my high-end home.
I can just keep on playing this game of buying a different set of income properties and claiming them as "primary homes" (up to the 4 total property fannie/freddie limits), right?
That's just ridiculous that I would have to go through these little games instead of simply qualifying with my 30% down/815+ fico/rental covering the PITI/large reserves, properly as an investor...which is what I am. I guess the banks and Fannie/Freddie don't appreciate honesty, but will allow me to claim these properties as my "primary home", then move to a different place a couple of months later, as long as you have at least 25% equity in your current "primary home" & the 75% of the rent covers the PITI.
What do you think?
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San Jose, CA
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Mark,
Sounds like you got this thing figured out. I would buy the 2-units and 4-units separate for the reasons ptiemann stated above. Basically getting 2 loans. I know for a fact that BofA would count 75% of rental income.
Based on my experience, interest rate for investment properties will be about 1 pt. higher than market rate for duplex and quadplex. On the unit you claim to be owner occupied, you can get away with 20% down. On the other one, putting down 30% will get you the best interest rate.
Wells fargo goes up to 45% DTI. I just talked to them this morning.
BofA goes up to 50% DTI. Haven't talked to them for awhile so the guidelines might have changed.
Best of luck :o)
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Pasadena, CA
E-man says
Would they only count 75% of rental income on a property I already own and claim to be my "primary home", or would they count on a Non-Owner occupied loan, based on the existing leases? I'm just trying to figure out if I'll be able to continue to qualify for loans on rentals after my wife and I purchase our home that we'll actually live in (forever, hopefully), as long as I have 30% down & 75% of the rental income covers the PITI.
E-man says
If I claim the quadplex to be owner-occupied, wouldn't I be able to get the current 4.2% 30-year fixed Fannie/Freddie conforming market rate on it?
So maybe the trick is to buy a quadplex, one at a time, claim it as my primary home, until I purchase 3 (for a total of 12 units), then my final purchase will be our family home...that'll still keep me under the Fannie 4 max loans limit total & assure that I get the lowest fixed rates on them.
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Dublin, CA
Cvoc13's website
So so many better investments that are far more certain, and less complicated, and yield oh so much more, except in the FEELINGS one might want to have in being a land lord, At least that is my opinion. But who really knows, If you do it, good luck, but I do hope you consider the many many more possibilities.
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Scottsdale, AZ
robertoaribas's website
if you have 20% down, you don't likely want an FHA loan.
4 unit properties I believe are the limit for owner occupied financing, period, even if you live in them. You really need to get a good loan officer or two looking at this, I have only touched a couple of these transactions in 15 years of real estate agency and investing.
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Pasadena, CA
Cvoc13 says
Like I mentioned above, this is in order to diversify my investments, not my main investment by any means.
This is a great way to hedge against the possible coming rampant inflation that we'll get due to QE and QE2, and other excuses the Fed uses to run the printing press 24x7.
Go ahead, devalue the currency Mr. Bernanke...that just means I get to increase the rent while my payments stay fixed at historically low interest rates. Furthermore, the millions that I borrow now will be devalued as well, so I'll be paying a lot less back in real terms (actually, the renters will, not me).
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San Jose, CA
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Mark_LA says
Either case above should work based on my experience. I've bought properties where there are existing tenants, and REO's where there are no tenants. In the REO case, as long as you can get a couple of rental agreements and deposit checks from the potential tenants, deposit them into your account and show the checks cleared, they bank would count 75% of that potential rental income as part of their DTI ratio.
TALK TO A GOOD LOAN OFFICER/MORTGAGE BANKER. They can work their magic. I didn't qualify for $1.5M in loans just based on my income. USE THE SYSTEM TO YOUR ADVANTAGE.
Mark_LA says
I'm sure you would qualify. Talk to a good loan officer.
- Ah, now you're thinking. You're almost there. It takes too long to explain this. Talk to a good loan officer and a realtor, and they can help you to strategize this.
Best of luck.