How soon should I apply for another mortgage loan

Question

I just bought a rental property 2 months ago and want to add another one. How soon is it advisable to apply for another mortgage loan after just making a purchase (already have a tenant on that first property)?

Adam Tafel · Answer

What kind of financing did you use for deal #1? If you used an owner occupant loan you’ll need a letter of explanation to justify that you intent was to stay in deal #1 for at least a year, but circumstances have changed. Do you need to be closer to a new job? Family planning? I’ve seen a buyer get past this hurdle with a cat -related reason for more space, so just think about your life situation and be honest.

The “test of reasonability” is something many new investors overlook on deal #1, although a skilled lender can usually get creative enough to get around potential underwriting hiccups. We aren’t really supposed to use HomeReady/FHA type financing to build rental portfolios, we are supposed to use the programs to purchase homes, and this “test” is the way a lender can justify moving from one home to another. It’s easy for an underwriter to picture someone wanting to move from a 1bedroom unit in a 4plex to a 3bed2bath side of a duplex, not so much the other way around.

Always best to sit down with an experienced lender an agent before the first deal to plan a few shots ahead, think of it like a game of pool. I personally shot myself in the foot with my first FHA deal in 2015 (I recovered but it killed my momentum for a bit) because I didn’t have the right guidance from the jump.

Bill B. · Answer

You could/should have done multiples at once mot really cuts down on the paperwork going back and forth and might earn you some economies of scale.

The only waiting periods is generally 1 year for primary homes. I’ve done multiple purchases with multiple loans the same day. Both at the same title company and at multiples. You’r still a small fish and an every day occurrence to people who do mortages and closings for a living.

Bo Smith · Answer

You're in a great spot actually. If you've had the tenant on property for 2+ months and the first mortgage is seasoning nicely, most lenders will greenlight you for a second mortgage. The key thing lenders look at is payment history and your DTI (debt-to-income ratio). Two months of on-time payments looks solid.

Here's what I'd do: Pull your latest rental agreement and a month or two of proof that rent was actually received. Then talk to your current lender or a mortgage broker about what they'd want to see. Some lenders will actually use the rental income from your first property to offset the DTI on the new mortgage, which can really help your qualifying number. Others have seasoning requirements -- usually 3-6 months before they'll consider the rental income. No harm in asking early to understand their specific timeline.

The faster you move on this, the better you're underwriting in this market. How much equity are you thinking of pulling from that first property versus going all cash on the second deal?

Janice Carter · Answer

There is no required waiting period. You can apply for another mortgage as soon as you meet the qualification criteria. The key issue isn’t timing, it is whether your overall financial profile can support a second loan without overextending yourself.

Michael Wyatt · Answer

@Placeholder Placeholder stands for Debt Service Coverage Ratio, using the income and expenses of the property as the main thing being underwritten rather than relying on your bank statments, tax forms, etc.  Does not repot to credit bureaus.  You would borrow in an LLC.

Lipa F. · Answer

Use dscr loan