Conventional financing question

8 Replies

Hello, I currently have a day job with W2 income, but like many others here that have already taken the leap or have plans to, I would like to free myself from the rat race somewhere down the line.   I have talked to my lender about using passive income i.e. notes/rental income to be counted as income for conventional financing and he said it shouldn't be a problem as long as the income is established and consistent for some time.  

Can any bp members tell me what your experience has been after 'breaking free' in getting financing post W2?  How long is long enough to have established passive income?

Robert H. I haven't made the jump yet from my W2 job. I do have my own company though, and from that, I know most of the banks I talked to wanted to see 2 years of steady income before they would even consider lending the business money. Hopefully that at least gives you a benchmark. Good luck!! Clinton
I have a - and plan to continue with my - W2 job, but I do use investment income and rental property income to qualify for conventional financing. Curious to hear from any professional mortgage folks, but my observation has been variable soft investment income (notes, other loans, equity investments) is counted if shown on 2 years tax returns (though expect something like only 70% counted and only the lowest amount). Rental income counted as long as you've got a lease to show it'll continue, again at around 70%.

Conventional lenders like to see a two-year history and three year continuance on any income source.  If you are purchasing rental properties, your goal will be to have a positive cash flow, but a tax loss, which means they will not help you qualify in the future.  If you buy mortgage notes, they may work to establish a three year continuance, but what if you are buying notes for under three years each?  Then the rule will not apply and the income will not be counted.  It is tough to leave a W-2 and qualify for about two to three years, based on your taxable income from qualified money sources.  Sorry the news isn't better.  There are reasons why the conventional lending market is only serving about 35% of investors right now.

After depreciation I haven't shown positive income with my rentals since I started buying/ holding. Would that mean that wouldn't help me with convential?

I only buy with portfolio loans. The rate is 5% for 15 years and it's a 5/1ARM. Conventional would allow me to spread over 30 years, right? How do people get that without a high paying w2 job?

Originally posted by @Aaron Vergason :

After depreciation I haven't shown positive income with my rentals since I started buying/ holding. Would that mean that wouldn't help me with convential?

I only buy with portfolio loans. The rate is 5% for 15 years and it's a 5/1ARM. Conventional would allow me to spread over 30 years, right? How do people get that without a high paying w2 job?

 Seller financing? OPM?