Can I buy a 3rd home with Conventional Loan ( I have two VA SFH)

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Can I buy a 3rd home with Conventional Loan ( I have two VA SFH)

Michael Solomon
Investor · Jacksonville, FL · Member since 2019 · 3 posts · 0 votes

Hey all,

I know some lenders differ but I wanted to see what you guys have to say. I'll have two SFH properties

. I've been renting my first home for almost a year now (have not filed taxes on rental income yet) and am preparing to purchase my second home in two months using my remaining VA entitlement, so I'm game planning for my purchase strategy on my third property . I'll have enough for a 5% down on a conventional loan to be my primary and i make enough to not need rental property income to qualify for a new mortgage . When i purchase my third home, I plan on moving into that home and house hacking again. However, to secure the loan, I know I'll need to provide the leases for my other two properties. I will be receiving way above enough cash flow for DTI, but what will I need to be able to provide to qualify for house #3 via conventional loan? Ive heard that if I haven't filed taxes on a homes rental income yet , then i can use my leases for the first two to offset their payment , but it's been confusing. Should i record income and file it on my taxes , or just wait until I purchase #3 to start filing my two property's rental income on taxes ? What do you all think? Im simply trying to offset the payments of the first two so they don't hurt my DTI , not use any rental income to qualify for the third house

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  • Zack KarpPro Member
    Lender · Schaumburg, IL · Member since 2015 · 834 posts · 774 votes
    1y

    @Michael Solomon congrats on what seems to be a successful house hacking journey.

    Here's how this works. The lender is going to require your most recent tax return. If a property was placed into service as an investment property prior to that tax year, then the lender is going to calculate your qualifying rental income (or loss) from your Schedule E. (If there is no rental income listed on your Schedule E in that scenario, you cannot use any rental income, period, even with a lease.) If the property was placed into service as an investment property during that tax year, and there is partial year of rental income, make sure that you put the correct number of fair rental days on your Schedule E, and the lender will prorate it for a full year. If the property was placed into service as an investment property after that tax year, that's when we can use your lease, and we use 75% of the rent and wash that against the PITI (total mortgage payment).

    So in your case, by the time you are ready to buy your 3rd property, your 1st property will be using your most recent tax return for your qualifying rental income. Your 2nd property will be using a lease, since you would be doing what's called a Conversion of your Primary Residence, which is when you buy a new primary and convert your existing primary to an investment property at the same time.

    Hope that helps. If you are working with a lender that does not underwrite to these exact Conventional guidelines, run. And based on your questions, it sounds like the loan officer you are working with isn't doing their job coaching you, mapping out your game plan, and explaining all of this.

    TYFYS and best of luck!

    847-387-5513
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