Do Investment Properties Hurt Ability to Get Mortgage for a Home?

Question

Hi everyone!

I have the opportunity to buy and hold a good rental property right now. However - I'm also planning to get a mortgage on my first home next year. Will having a 30 year mortgage on that rental property, and having renters in the property, negatively affect my ability to get a mortgage for a primary residence in any way at all?

Any info on this will be very helpful! Thanks!

Jeff B. · Answer

I've experienced somewhat inverse: multiple SFRs impacting the financing of any other RE. At about four properties, lenders start to see you as a professional agent and money comes with difficulty.

Brie Schmidt · Answer

@Laith Kareem The lender will take what you report on your taxes, add back in depreciation, mortgage interest, insurance and taxes and then take that monthly amount and minus your PITI payment. If it shows negative then they will take that out of your income, if it shows positive they will add that back to your income. If it isn't on your taxes yet they will generally use 75% of the rent minus the PITI.

I suggest talking with your lender about what your plan is and make sure when he funds the investment property it won't affect the funding of your personal one.

Laith Khalil · Answer

Excellent, thank you all again - this has been very enlightening! I'll keep all this in mind moving forward. Laith

Edward B. · Answer

@Laith Khalil

Again, it depends. Used to be they would just take 75% of the rent and apply that against the mortgage payment (PITI I believe) to determine if the rental property was helping or hurting your debt to income. For the last several years, though, I have had to provide 2 years of tax returns and they are taking the actual performance of my properties, as reported to the IRS, to determine the effect on my DTI.

This method gives them a more realistic idea of how your properties are performing but may unnecessarily penalize you if you had higher than average vacancy or maintenance expenses. Of course, it could help if those expenses were lower than average. Never seems to work out that way, though.

Laith Khalil · Answer

Thanks guys - I really appreciate your input!

Now one question I have is - let's say I don't necessarily care about demonstrating Income, but I just want the property to at least appear neutral in terms of my DTI.

If I'm paying the mortgage with rental income but not keeping any profit, and have only been doing so for a few months - will that basically show as a net 0 impact on my DTI, or does it really need to appear as income on my tax return for X amount of time to even appear neutral (and until then it'll hurt my chances)?

Thanks again for your help!

Laith

Jerry Bruckenheimer · Answer

@Laith Khalil

Agree with @Brie Schmidt Also be prepared for them to discount your rent received as income for purposes of DTI. For example, if you have a lease in hand that demonstrates $1000 a month income from your rental property, the lender will only count a percentage of that as your income.

Brie Schmidt · Answer

@Laith Khalil - it can, but it can also help you qualify for more. It will all depend on what your tax returns look like and if your lender requires 2 years of rental income history to include it in your qualification.

Do Investment Properties Hurt Ability to Get Mortgage for a Home?

Do Investment Properties Hurt Ability to Get Mortgage for a Home?

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