How do I buy a 2nd property?

Question

Happy Holidays all!

I am a new member here and looking to see what I can learn to purchase additional property especially with the low mortgage rates. I originally bought my first house in Baltimore, Maryland for $200,000 at around 3.25% at 15yrs in 2018 and currently make around $65,000. Im also living in the house while also renting out the rooms/room. I recently spoke to some banks to get pre-approved but apparently my debt to income ratio is not favorable for me. Is there a way to get around this and purchase another home soon?

Van Wagner · Answer

Hi Eric,

Since you're so new, I'd recommend doing some research into alternative financing options. There's actually far more options than you'd thing. BP is obviously a great resource for learning along with "The Book on Investing in Real Estate with no and Low Money Down" and the Bigger Pockets podcast. Start with researching things like hard money lending, private lending and seller financing, that will likely get you off on the right foot!

Eric Daniels · Answer

Thank you Marcus, Ill look into that, would you happen to have any recommendations on how to look for one or referrals for a good mortgage broker?

Eric Daniels · Answer

Thank you Sam, thats actually a good idea. I wish the agent I was speaking to mentioned that. I'll definitely take a look into this and see if this changes anything

Eric Daniels · Answer

For sure Van, reading as much and learning as much as i can from these forums and podcasts as well

Paul De Luca · Answer

FHA loans are for your primary residence only.

Kenneth Garrett · Answer

@Eric Daniels

The BRRRR strategy is not going to resolve your DTI issue since you will still need to refinance out of the HML or private money.  I would look at commercial lending with the BRRRR strategy.  DTI does not apply to your refinance.  You’ll need approximately 25% LTV maybe 30%-35% until the COVID crisis ends.  Interest rate on commercial loans are about 4.5%.  You’ll need to own in an entity such as an LLC.  It is another option.  Of course creative deals such as owner financing is an option.

Good Luck.

Marcus Hairston · Answer

@Eric Daniels

Hello Eric you can use some creative financing strategies to buy your next deal, however, as others have mentioned doing a BRRRR may be the easiest more practical way to go depending on your goal. I would also recommend looking for a good mortgage broker. They typically have access to more products and some are more creative than others when navigating you through the approval process.

Gayle Melnick · Answer

@Eric Daniels Your lender should be able to use the projected rental income from the second property rather than the debt to income ratio. I believe it's called the debt service coverage ratio. That's what I did when I bought my second rental. I did have to specifically ask though, because my lender initially told me my DTI wouldn't work.

Tim Jacob · Answer

@ Eric Daniels I think Baltimore is your best bet for affordability.  If you had capital or could borrow it a brrr could work but you need to find something with a good amount of spread to the arv.  Its hard to do that when you want to do the basic cosmetic upgrade most investors do in this market thats 30k or less to a single family.  Its probably 9% all in the hml is gonna take.  Its really finding the right deal and what you can risk and be willing to leave in the deal.  For the dti to add if you do a 30 yr or yourgage more than 15 yr you could add some back since your payment will be less. Maybe that doesnt make sense though and especially if you will get hit with pmi after adding closing costs back.  Don't know how close that is.  To find deals that really brrr it will take some outside the box thinking.

Jeremie Torres · Answer

@Tim Jacob Going the BRRRR route on the next house, wouldn't @Eric Daniels have to go through the same issue he's having now down the road on the Refinancing part of the BRRRR? Cos if he is going through issues financing the next property now how does BRRRR helps on a refinancing part later on? Care to shed some light on that a little bit cos eventually BRRRRing sounds really promising. TIA!

How do I buy a 2nd property?

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