Am I being Tested OR Am I being told to Wait?!

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Am I being Tested OR Am I being told to Wait?!

Shedrick Boyd
Member since 2020 · 23 posts · 10 votes

Currently in the process of getting financing. Going to be a owner occupancy conventional, so only need 5%, I’m on board!

Lender tells me they can't use rental income because I don't have 2 years rental history...Now my rental property mortgage is being fully calculated (even though I'm not paying for it at all) and screwing with my DTI.

Now my qualified amount is significantly less and in my market, (shoutout Denver, CO✌🏽) that wouldn’t be enough to purchase me a shed....

With the current market I am now beginning to think maybe this is not my time, I can wait, save up a lot more, and come back when it’s less competitive. OR maybe I need to keep looking around and find a different lender?

Is the universe telling me to WAIT OR is it throwing me a TEST!? Thoughts anyone!?

P.S. I’ve spoke with 3 different lenders now and had my credit pulled 3 different times. Getting old at this point...

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James CarlsonBusiness Member
Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
5y

@Shedrick Boyd

To you other question: Should you wait to buy a home in Denver because the market is so crazy hot?

I'm interested in other's opinions here, but my answer is an emphatic "no." There's no indication that prices are going anywhere but up. Zillow's survey of economists said Denver's likely to be a top 5 hottest market in the U.S. again this year. Appreciation is forecast in the double digits. (So if you're looking at a $450,000 house right now, it will be nearly $500,000 next year.) Interest rates are forecast to go up slightly, but only slightly to the like the low 3% area. That's not going to dampen demand at all. With the pandemic, we're seeing an influx of remote workers as well, many from coastal areas where their higher prices make Denver seem relatively affordable, so they're buying up things as well. 

It's not a great scenario, but I don't see prices going down or even evening out for the foreseeable future.

[email protected]720-460-1770
James Carlson Real Estate
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  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    5y

    If you spoken with 3 different lenders and the outcome is always the same, you need to consider what you're doing. You say you have other rental income. Could it be rather than quantitiy you should be looking at quality of your investments? If 3 lenders have all told you the same thing, another isn't going to be any different. Maybe you need to change your game plan. 

    1Reply
  • James CarlsonBusiness Member
    Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    @Shedrick Boyd

    Yeah, Denver's real estate market is stupid right now. I'm working with buyers looking to house hack or do an Airbnb investment of sorts, and we're seeing the craziest offers I've seen since I've been doing this.

    I'd talk to another lender. First, I'm assuming that you live in one property, are moving to a second property, and this other property -- a third property -- is a rental property from which you're trying to count rental income?

    If that's the case, there are a few scenarios here. If it's a newer rental for which you haven't reported income on your taxes yet, then a lender should be able to look at a lease agreement and count 75% of that rent toward your DTI.

    If it has been reported on your taxes, then they should be able to count all of the reported rent. Now, if you have been taking a loss on that rental, which some people do, then you can't count it. 

    Good luck!

    [email protected]720-460-1770
    James Carlson Real Estate
    WebsiteView Page
    2Reply
  • Shedrick Boyd
    OP
    Member since 2020 · 23 posts · 10 votes
    5y

    @Karen Margrave each lender has given me a different answer but all result in me not being able to qualify for any relative amount. Based on the information in my post would you have any ideas or strategies I should research to develop a successful game plan?

    0Reply
  • Shedrick Boyd
    OP
    Member since 2020 · 23 posts · 10 votes
    5y

    @James Carlson I am actually living with my parents. My next investment would be a primary residence for the first year, which I would eventually turn into a rental. I have not reported any rental income on taxes yet because it has been so recent and I have not had a full tax year to report.

    1Reply
  • Shedrick Boyd
    OP
    Member since 2020 · 23 posts · 10 votes
    5y

    @James Carlson will you educate me on what happens after reported income on taxes after 2 years?? Will banks still use any mortgage(s) as part of my DTI even when I'm not paying for them and have substantial history of rental income? I have yet to get a understanding on what to expect in the future and how I can overcome these objections

    0Reply
  • James CarlsonBusiness Member
    Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    @Shedrick Boyd

    You should lean on your agent and your lender for this info, but my understanding is this:

    Unfortunately, if you own a rental property in Denver (or Colorado Springs or anywhere) but you do NOT own and live in a primary residence, lenders cannot count that rental income toward your income. Why? Likely because the government assumes if you own only one property, it's your primary residence. Maybe some Denver lenders can chime in here?

    Your debts will always be counted. So your mortgage will be counted against you. But lenders will also start counting your income generated by that property. It's not like the mortgages don't exist. It's just that your lender will offset your mortgage debt with the income from the property that's reported on your taxes.

    Good luck!

    [email protected]720-460-1770
    James Carlson Real Estate
    WebsiteView Page
    1Reply
  • James CarlsonBusiness Member
    Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    @Shedrick Boyd

    To you other question: Should you wait to buy a home in Denver because the market is so crazy hot?

    I'm interested in other's opinions here, but my answer is an emphatic "no." There's no indication that prices are going anywhere but up. Zillow's survey of economists said Denver's likely to be a top 5 hottest market in the U.S. again this year. Appreciation is forecast in the double digits. (So if you're looking at a $450,000 house right now, it will be nearly $500,000 next year.) Interest rates are forecast to go up slightly, but only slightly to the like the low 3% area. That's not going to dampen demand at all. With the pandemic, we're seeing an influx of remote workers as well, many from coastal areas where their higher prices make Denver seem relatively affordable, so they're buying up things as well. 

    It's not a great scenario, but I don't see prices going down or even evening out for the foreseeable future.

    [email protected]720-460-1770
    James Carlson Real Estate
    WebsiteView Page
    3Reply
  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    5y

    When we last applied, they would count a percentage, like 80%, of all rental income, and deduct the mortgages. Once you have your first 2 years in, even with just one rental, I believe any new ones count right away, not 2-yr wait on each one, as you are now showing you are a seasoned landlord, so it gets easier. Even if you have to wait (which we did when we maxed out our DTI and credit dropped for too many new loans), we didn't see it as waiting, but counted each deposit we made into our reserve account as the next step towards our next property. It helps to think you're taking steps towards it rather than in a hold pattern, at least for me.

    2Reply
  • Chandler Kimble
    Lender · New Braunfels, TX · Member since 2021 · 27 posts · 9 votes
    5y

    Hi Shedrick,

    Just because you haven't had the rental for 2 years doesn't necessarily mean the rental income can't be used as qualifying income. When did you put the rental unit into service? Do you have a current tenant with an executed lease? Depending on when the unit was placed in service and what your Schedule E looks like, you may be able to use the income to qualify. 


    I'd be happy to answer any questions you have (and wouldn't need to pull your credit again to do so).

    2Reply
  • Chandler Kimble
    Lender · New Braunfels, TX · Member since 2021 · 27 posts · 9 votes
    5y

    Also, conventional owner-occupied loans only require a minimum 3% down payment - if a lender is telling you 5% is required for conventional they may not know what they're talking about. 

    0Reply
  • Shedrick Boyd
    OP
    Member since 2020 · 23 posts · 10 votes
    5y

    @Chandler Kimble lease began November 2020 so very recent for me

    0Reply
  • Shedrick Boyd
    OP
    Member since 2020 · 23 posts · 10 votes
    5y

    @Account Closedin my infancy so what information I am learning I am trying to follow and stick with what I know before I begin vetting deals I am not educated on

    0Reply
  • Shedrick Boyd
    OP
    Member since 2020 · 23 posts · 10 votes
    5y

    @Chandler Kimble two lenders told me 5 percent and one was through rocket mortgage. I’m not sure where they’re getting their info either so I’m not sure how accurate it is

    0Reply
  • Dennis Wayne
    Member since 2020 · 339 posts · 356 votes
    5y

    Another reminder why I never use banks , not worth the trouble and time

    1Reply
  • Shedrick Boyd
    OP
    Member since 2020 · 23 posts · 10 votes
    5y

    @Dennis Waynewill you educate me on how you are able to acquire properties or leverage yourself? Do you use a lot of private money? I’d love to learn a strategy to avoid banks or point me in the right direction I can learn and develop a new skill

    0Reply
  • Shedrick Boyd
    OP
    Member since 2020 · 23 posts · 10 votes
    5y

    @Dennis Waynecorrection* how you are able to acquire properties without using a bank I should say

    0Reply
  • Erik B.
    Rental Property Investor · Amityville, NY · Member since 2018 · 351 posts · 441 votes
    5y

    Try non conventional.

    From my experience the loan for your primary home is harder to obtain than a rental property.

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y

    Just save and season while you have few expenses and learn about seller financing. Lots posted about it on older threads. 

    0Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    5y

    Pull your own credit reports from the 3 bureaus and tell the lender to provide you a written preliminary analysis and pre-approval based on what you provided. Lenders don't typically care what they're doing to your credit by pulling one report after another. And since they don't have liability for being being untruthful regarding your qualification, they have nothing to fear. There are some good lenders (I know one in Colorado) out there but I trust most lenders slightly less than I trust corner store sushi. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @James Carlson:

    @Shedrick Boyd

    You should lean on your agent and your lender for this info, but my understanding is this:

    Unfortunately, if you own a rental property in Denver (or Colorado Springs or anywhere) but you do NOT own and live in a primary residence, lenders cannot count that rental income toward your income. Why? Likely because the government assumes if you own only one property, it's your primary residence. Maybe some Denver lenders can chime in here?

    Your debts will always be counted. So your mortgage will be counted against you. But lenders will also start counting your income generated by that property. It's not like the mortgages don't exist. It's just that your lender will offset your mortgage debt with the income from the property that's reported on your taxes.

    Good luck!

    well here is a classic example of buy your primary first before the rental.. I did not know this either.. good info .. 

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    2Reply
  • James CarlsonBusiness Member
    Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    @Jay Hinrichs I just heard this from two of my favorite lenders in Denver. I didn't know that before, either, and does support the idea that you should buy the place where you want to live first before thinking about investing.

    @Guy Gimenez I believe you can have your credit pulled for mortgage applications numerous times in a set period -- 15 days or 30 days, I believe -- and those only count as one pull, so there's no major hit on your credit score for asking a couple different lenders for help as long as it's in a compact period.

    @Shedrick Boyd Would you consider a condo right now? Condos in Denver and Colorado Springs are a relative deal. Single family homes were the rage during Covid, so condos got forgotten, but I don't think that will always be the case. As long as you do your research on the condo's reserves and know that they're in a good position, condos can be a good buy. 

    [email protected]720-460-1770
    James Carlson Real Estate
    WebsiteView Page
    1Reply
  • Kayla Givens
    Lender · Denver, CO · Member since 2021 · 243 posts · 253 votes
    5y

    I am no expert but I found this video to provide some really great insight (and maybe even a little hope?). Thoughts?

    Ken McElroy - Real Estate Housing Crash Q4 2021

    0Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    5y

    @James Carlson

    Hard credit pulls ding your credit. It may be temporarily, but it still dings it. And the issue is there is no hard evidence on how often you can pull reports before the ding has longer lasting effects.

    0Reply
  • James CarlsonBusiness Member
    Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    @Guy Gimenez I hear you. A hard pull does affect your credit score, but according to Experian, one of the three major credit bureaus, a credit pull drops your score by 5 points or less and will bounce back within a few months.

    And what I was saying before is that I think there's a fear out there that if have a hard pull from multiple lenders, it will drop your score each time. My understanding -- and ask your lender about this -- is that hard credit pulls within that set period of 30 days, as long as they're all for mortgage applications, will only count as one pull. So you're looking at a 5-point reduction in total.

    [email protected]720-460-1770
    James Carlson Real Estate
    WebsiteView Page
    1Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    5y

    @James Carlson

    Bottom line, is 5 to 10 point drop in scores is enough to remove a prospective borrower from a specific loan product. Credit has to be pulled but it makes little sense to pull it 6 times in 30 to 60 days. Pulling it once yourself and providing that to the lender should allow the lender to get a snapshot of what loan programs are available. Perhaps the big 3 have changed their scoring policies (in the past, multiple hits have had far more than a 5 point drop) but then again I trust the credit bureau's honesty about this topic slightly less than I trust corner store sushi. I monitor my reports every year for this very reason.

     

    1Reply
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