Financing my second property

21 Replies

how to finance my second home?

I live in nh, i have a score above 700 with 100% on time payment and 11 years old credit. As you can see I have been very responsible. 

I dont have the 20-25 % for down payment. And my debt to income ratio is above 45. I make $66,000 as a software engineer, I graduated 4 years ago. I own a two faminly which I got 3 months ago. It pays itself. 

I want to get another house but the bank says I don't qualify because of the debt to income ratio.

How can I find a lender?

Please I ask me if you have any questions.

Will

Look for potential owner finance deals.There are plenty of creative financing options to close on a good deal, less options to close on a so-so deal, look for deals and financing simultaneously. Hope that helps. 

Have you looked at private funding? You might be surprised to find that you know someone who could finance the deal for you and like the opportunity to be your bank. 

How would I go about private money? Would we partner? Would i borrow the whole loan from the private lender? 

All I need is cash for down payment. I asked my previous lender, and others, and they told me if someone else was providing the down payment they would have to be on the loan too. And I can't borrow the money either. 

I have always made payments on time, I always do what needs to happen to get it done. 

All I need is down payment and I take care of the rest. 

Will

not sure how much you need, but would a small (10K) personal loan from a separate bank  or better yet a credit union be an option? get the terms as long as you can to make the payment as painless as possible then refinance in 1-2 years.

@Willy Vasquez morales --

Hi glad to see you. When it comes to financing properties in New Hampshire, I would structure the preapproval letter with 15% down as investment using rental income to qualify and with a "3% seller credit towards buyers closing costs & escrows." (We'll want to use this exact language on the contract Maximize the seller credit.). This structure will keep your cash due at closing to just the down payment.

Keep in mind , you will need 6 months cash reserves remaining after closing. Generally 50% of retirement counts to towards reserves. If the total monthly housing expense is 2000, the n you need 12,000 in the bank or 24,000 in retirement.

Ask anything. Happy to help.

.

The debt to income ratio is high because i have a student loan of $40k for which I pay $200 a month based on income payment plan. But the bank requires a minimum of 1% which makes the payment $400 a month. 

I get $1350 for my other rental and they don't count all of that as income. If I get a 2 or 3 units fully rented they won't count all the rent as income.

I agree with @Account Closed to work towards buying the next one by saving for a down payment.  It might take a year or two, but its a safer way of investing and probably one of the only ways to do it unless you find that "needle in a haystack" seller that would seller finance a deal.  

@Willy Vasquez morales

Both @Account Closed is right, it will increase your DTI.

2) The bank will probably want sourcing and seasoning of your funds to prove that it is, in fact, skin in the game.

3) Even a seller who's open to seller financing will, if they're thinking straight, want to see something down before holding back a note.

Here's what I would recommend:

Slow your roll a bit. In time, you should be able to pull some equity out of your duplex to fund a down payment on your next acquisition. If not, you paid too much, or you didn't do things that you could have done to improve the value. Remember, REI isn't just about buying properties; it's about buying the right properties for the right price and managing them the right way to create a return.

If you are really ambitious and want to go as fast as possible, find a way to make your own money to invest in more properties. Many of us who have built sizable rental portfolios have done so by flipping some along the way to replenish capital, or by making money some other way and then parlaying it into real estate investments. The idea that you should be able to just keep buying properties with OPM and none of your own is foolish for 2 reasons:

1) Why would a lender go for that? Short answer: they won't.

2) As Matt said, you're going to over leverage and set yourself up for possible BK if things don't go exactly as planned. Your duplex, in your own words, "pays itself". If that means what I think it might, and the rents are just covering the expenses and debt service, that's a sketchy situation. I'd be hesitant to jump into another one.

Just to clarify your point: 

2) As Matt said, you're going to over leverage and set yourself up for possible BK if things don't go exactly as planned. Your duplex, in your own words, "pays itself". If that means what I think it might, and the rents are just covering the expenses and debt service, that's a sketchy situation. I'd be hesitant to jump into another one.


I live in the first one so the second unit pays for the mortgage. Is that bad? if i were to rent both units that would be very good cash  flow. ???

If you move out and rent both units you still have to live somewhere right? Depending on where you move to, the additional rent income may just cover your new rent so you'll be in the same spot.

@Account Closed I wouldn't. Look at the numbers. 

I live in a house with $1450 expense and $1350 income. I live rent free. 

If i move I would rent this and the numbers change dramatically.

I would have a house with $1450 expense $2700 income. Plus another 2 families where I would live with $1500 expense and $1500 income. 

Two house with $2950 expense and $5650 income is way different than one house with $1450 expense and $1350 income.

Did I lose you yet?