Buying multiple properties through traditional lender?

Question

Hi! Just getting started, diving in feet first to Bigger Pockets and seeing more possibility in real estate investing in the near future than I realized.  So here's my question:

• Is this possible to buy through a traditional lender on multiple properties?

I’d like to buy multiple rental properties over time (I'm thinking to start with single family). I’ve got a great job that I love at the same employer for the past few years, a steady paycheck, and excellent credit.

With the debt to income ratio requirements, I’m thinking I’ll cap out at 2 - 3 properties of a certain size (which would include the home I live in.)

• Am I more likely to get approved by a traditional lender with 20% down?

I could go through a private lender, but with a buy and hold strategy, I'm thinking the cost of high interest rates will add up quickly.

As a newbie, I so appreciate any insight and experience you be able to share.

~Katie

Upen Patel · Answer

@Russell Brazil Thank you for the mention.

@Katie Levey What you want is a mortgage banker that will use all sources of income (salary, business, rent, etc.) and has no internal overlay. This will allow you to buy residential (1-4 unit) investment properties using 30 yr fixed Fannie/Freddie financing. You will have to put 20-25% down.

Hope the helps.

Russell Brazil · Answer

Typically as a general rule if your DSCR, Debt Service Coverage Ratio is at 1.25, the debt on a property is not going to hurt your DTI. So for instance, your PITI (Principal, Interest, Taxes, Insurance) payment on property is $1,000 a month...and you rent it for $1,250 (1.25 DSCR) then you should be in the clear to borrow for the next property.

@Chris Mason and @Upen Patel are both mortgage loan officers and could probably provide pretty exact information on what lenders are looking for.

Chris Mason · Answer

If you click this link, you can run numbers for yourself for the different scenarios using Fannie Mae documentation direct from Fannie. You will see that there are actually several different ways of calculating income, depending on the scenario. More than two ways.

Sam LLoyd · Answer

@Chris Mason That is interesting, and might help to explain the headaches.... so the different way that they were calculating DTI depended on how they were classifying the properties.  I will go so far as to assume someone was screwing up, since they were not all in agreement, or internally consistent, but knowing how it is supposed to work helps clear this up for me.  Thank you.

Chris Mason · Answer

Assuming no one is screwing up, that variance you describe should be the difference between an owner occupied MFR (former), and a non-owner occupied investment property (latter). Assuming no one is screwing up, that should not vary by lender. Fannie is pretty crystal clear about this distinction.

Sam LLoyd · Answer

@Katie Levey

I'm in Alaska... not too familiar with your area... hopefully someone else here will chime in.  I met my mortgage broker at a real estate investors meeting... so try to find groups like that where you can ask around locally.

Katie Levey · Answer

@Sam LLoyd -- thank you! This question has stumped me for a full month. You reinforced why this is such a great site.

Are there any mortgage brokers in the greater New York State (outside NYC) / Connecticut area that approaches lending the second way who you might recommend?

Sam LLoyd · Answer

You'll find that lenders can value your DTI two different ways... one is to add the income and add the debt to your balance, in which case a rental will negatively affect your DTI unless that property has a DTI of less than 40% (or better, since the lender will use it's own vacancy rate.)  If this is the case, yes, you will max out quickly, like I did.

The other way is to find a lender that looks at a property, and only adds the profit to your income side.... so a single family house makes $300/month after all expenses.... it doesn't matter how much you pay for the house... it improves your DTI.

So, finding a lender or mortgage broker that looks at your finances the right way is key.  After that, it's just a matter of finding enough money not only for the down payment, but also for the reserves that the lender will require.... For example... I'm trying to finance a 4plex right now, which will be my 5th property.  The down payment is 25%, but because of my other rentals that I need reserves for, I have to have 45k in the bank in addition to the 25%.

The terms, down payment and reserves, change as you get more conventional loans, and then they max out at 10.  However, things are always changing, so go build relationships with some lenders that understand what you want to do... be successful at it, and keep plugging away.

Buying multiple properties through traditional lender?

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