Obstacles While Trying To Buy My First House

10 Replies

Hello everybody, I've saved up $14,000 at the age of 19 and I've built up my credit score to 780, however, my plan initially was to get a credit card, build my credit, and save up some money. With the money saved up I was planning to pay a 5% or less down payment of a multi-unit house and rent it to make some passive income while getting the unit paid off at the same time, however, the things that concern me are:

One thing I learned with time is that I need to get pre-approved by a lender who will give me an official verdict on my home buying budget which depends on my credit score and income. Although my credit score is good, it has limited credit history meaning I've only had ONE credit card since August 2020 and I've recently in August 2021 starting paying for a car which I had to co-sign with my dad because my credit alone was not enough to make me qualified for a car loan. Another issue is my income because houses in Miami are expensive and the cheapest that I can find are single family homes instead of multi-units and require a mortgage of around $1,200-$2,000/ month ($200-000- 350,000) which is a lot to pay with the little income I make from my W-2 job but it's not impossible, however, in the eyes of a lender it will be seen as risky and insufficient income. 

What do you guys recommend I do regarding my credit score to improve my chances of getting a good loan with low interest rate on a house? Should I save more money for a bigger down payment or simply find a better paying job? Are there areas in Miami with new markets that I'm not aware of with cheaper prices? I have a lot of questions and any advice on what to do will help tremendously. Thanks!!!

You probably don't need to reinvent so much. Just change your target. Go for the single family home instead of the multi. If you have to explain to your dad why you're asking him to cosign on a home loan, give him a promissory note and let him know he is backing your wealth so that he will never worry about your future.

Once you have a home picked and you're going through the closing, post a room or two for rent. Sharing a single family house with strangers can be less than ideal, but it's safe and financially powerful. If you get a 3/2 and find two renters, you can cover the entire mortgage and 2/3rds of the utilities. By the end of just one year, you can find a third renter, buy a multifamily and repeat the process.

And at that point, you'll have naturally increased your income with rent coming in, plus added twelve months of credit history to the car, a house, and a credit card, making you a desirable borrower. Best of luck! 

(If your dad won't cosign, find someone who will. Maybe you have to put a deposit down on a cosigner and give him or her a fee for helping, but if you're creative, you can get it done well and safely.)

OR don't go the way that 90% of the people in this country purchase a house. Talk to people and find someone who will owner finance the house to you. It takes lots longer and is more involved. BUT your income does not have to be 3x the mortgage payment.

I bought properties with owner financing, subject to the mortgage(sub-to or sub2), or private lenders. Of the 100+ houses that I have purchased over the years, only 1 person has asked for a credit report. That is only because she did not know me very well. AND my score was 650ish at that moment because I had just bought a car and had lots of credit card debt from some overages on a few houses that I was rehabbing. She did the loan because she knew friends of mine and I came highly recommended.

Moral of the story: You dont have to do what everyone else is doing. You can get what you want, but dont do it like everyone else.

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@Rick Pozos I have some questions if you don't mind. 

What's a good rule of thumb to go by when figuring out how much income i need to get a good loan from a bank? Do banks really expect 3 times the mortgage payment as income?

What is owner finance? 

Thank you for the advice as well.

@Jody Sperling Thank you so much for your advice Mr. Sperling. My dad is currently in the process of buying a house for my family so he is out of the question for being a cosigner. However, I'm sure I can find someone who is willing to be my cosigner. I have a few questions if you don't mind. 

If you've heard of Fannie Mae and Freddie Mac then you'll know they have certain requirements to qualify for them. Does my cosigner have to satisfy the requirements as well and are cosigners even allowed in these type of government loan programs?

What do you consider the easiest way to post rooms for sale?

I'm between an area called Homestead which is constantly having new houses built as expansion to the south of Florida increases and another area called Tamiami next to one of Florida's top universities, FIU. Homestead offers me more bedrooms and space for the price of the house but Tamiami has a never-ending demand of students who need a place to live close to campus. So I'm between Homestead's new market, chance of appreciation, and more bang for your buck aspect OR Tamiami demand for rented rooms. 

Thank you for your answers and advice. :)))

It is pretty normal for banks to want about 3x the mortgage payment. Talk with a lender to see exactly what the number is for FHA or conventional loans. But as I mentioned, DONT go with a bank, because you can't get a loan through traditional methods.

Not exactly an expert on this but first of all:  Nice work with saving and having your head in the right place here getting started. 

I bought my first rental at 20y.o right before the housing market collapse of 2008. It didn't matter significantly because I was able to keep it rented for 13 years and eventually sold that first place. The biggest issue for me looking back might have been opportunity cost of having too much DTI tied up with that one single family home.

Anyhow I don’t want to be long winded but I think the key here is creativity that I never knew about. Definitely get in the trenches and try to source off market deal and get creative with the finance (seller , or Sub 2). The biggest thing is the skills you’ll gain and develop in pursuit of this will serve you so soo soo much more than dealing with a bank and traditional lending. 

There is a really good podcast from on the BP RE podcast (Episode 527) with Pace Morby , I’d recommend giving that a listen and thinking it over and seeing what you could figure out. I truly feel if you can master that at your age you will be wildly successful beyond what you could currently even imagine. - that’s what I’d tell 19/20 yo me. 

Good luck man ! 



@Steven Rodriguez, this is absolutely amazing that you are getting started with real estate this early on! I swear, man, you stick to it, take the correct, consistent and massive actions, you will be SET! Check out Grant Cardone's "10x Rule" and set the goals BIG.  Now is the time for big goals, man, you are in a prime position to gear the rest of your life for insane amounts of success!

As a genuine rookie myself, I don't have a lot to offer advice wise in terms of loans and investing-related stuff.  However, on the topic of credit.  It is tempting (especially young) to get excited over that credit score.  Coming out of college with five student loans, three of which I had been paying and two of which were in deferral (which appeared as "On-Time Payments"), my credit score looked "great!".  And then I was introduced to the concept of credit history, and how that is considered along with things like debt/income ratio, etc.  

Point being, the score is a very convenient, very quick reference of how responsible you've been GIVEN your established credit history. But it's just that, a quick reference, and institutions that are going to trust you with large sums of money are going to use a lot more to determine your "trustworthiness" than a number that pops out of an equation. 

Again man, this is so cool that you're starting this early! Do NOT cede ground! Get creative with your financing, hunt the deals down, do whatever you gotta do, but do NOT give up this golden opportunity! 

Originally posted by @Steven Rodriguez:

@Jody Sperling Thank you so much for your advice Mr. Sperling. My dad is currently in the process of buying a house for my family so he is out of the question for being a cosigner. However, I'm sure I can find someone who is willing to be my cosigner. I have a few questions if you don't mind. 

If you've heard of Fannie Mae and Freddie Mac then you'll know they have certain requirements to qualify for them. Does my cosigner have to satisfy the requirements as well and are cosigners even allowed in these type of government loan programs?

What do you consider the easiest way to post rooms for sale?

I'm between an area called Homestead which is constantly having new houses built as expansion to the south of Florida increases and another area called Tamiami next to one of Florida's top universities, FIU. Homestead offers me more bedrooms and space for the price of the house but Tamiami has a never-ending demand of students who need a place to live close to campus. So I'm between Homestead's new market, chance of appreciation, and more bang for your buck aspect OR Tamiami demand for rented rooms. 

Thank you for your answers and advice. :)))

Steven, this is a really easy read to define what a co-signer needs to qualify: https://www.rocketmortgage.com...

As for rent by room, list it the same way you would if you were posting a multi-family or a whole single family home, on Zillow, Facebook, and Craigslist. Clarify in the ad that it's a multitenant house and you are renting bedrooms.