when to get my second rental?

Question

i closed on my first rental last month.  i replaced the electric service and upgraded the kitchen.  my first tenant is in and rent will be paid by end of month! i own the house free and clear and i want to obtain a heloc or line of credit to get a second rental, service the debt with the income of both homes.

how long should i wait to have it appraised?  will the lender always send somebody to the property to inspect?  i live in philadelphia, if i find a lender i like in california, will they compute equity based on comps?   if my salary from my 9-5 wont cut it in terms of DTI ratios for the loan service, how long will they need to see rental income?  will a signed lease and deposits count??

Shane Johnson · Answer

As Dawn stated, usually 1 year seasoning for most conventional lenders, but there are others (mainly portfolio lenders) with shorter seasoning requirements. Also, because of DTI, and my W2 income, the lenders I work with, want to see at least 1, up to 2 years of rental income. This shows performance with the property, and with me as a landlord. 
	
	If you can find a good lender to do it now or soon, go for it. If a lender will do it now, they may only base it off of purchase price and receipts for work done. (or only materials if you did it  yourself). 
	
	With my property, I was going to try at 6 months, they gave me a drive by, weak appraisal. Now at 14 months, I am getting a full appraisal, and have 3-4 great comps that just came in. If this is single family and you can wait up to a year, it may benefit to sit on it until the 1 year mark and/or when some great comps come in. I waited an extra 1.5 months before applying, knowing I had 3 great comps closing soon.

Dawn Anastasi · Answer

Many times conventional lenders want to see a period of time to count rental income in the DTI ratio.  Plus there is a "seasoning" period you need to have in order to get a cash-out refinance. Typically this is a year. If you want other terms, you'd need to look for a portfolio lender.