Home Equity Loan Qualification vs.
I would like to take on real estate investing full time. I have two options I am considering: 1) Sell my house to get cash to work with. Rehab a property, then create a traditional mortgage to pull my cash back out for next project. 2) Get home equity loan...rent out my house in San Jose, CA for a good amount of rent income...then use my loan to do a flip somewhere more affordable. My question is...in either case what about lenders caring about income? If you don't have traditional employment...how does that work? Do they just care about the value of the property itself? I have a ton of equity in my current home...and when I applied for a HELOC a few years ago they said my "debt to income ratio was unfavorable". At the time I made $50K a year and had about $600K of equity in my home. I would love to keep my current home in San Jose, CA...rent it out for a sizeable rent and let the value continue to grow. But does that mean I have to line up a job in that new location i find before I can secure my loan? And how does my rental income factor in? Thanks for any advice!
Originally posted by @Devon Carlock:
I would like to take on real estate investing full time. I have two options I am considering: 1) Sell my house to get cash to work with. Rehab a property, then create a traditional mortgage to pull my cash back out for next project. 2) Get home equity loan...rent out my house in San Jose, CA for a good amount of rent income...then use my loan to do a flip somewhere more affordable. My question is...in either case what about lenders caring about income? If you don't have traditional employment...how does that work? Do they just care about the value of the property itself? I have a ton of equity in my current home...and when I applied for a HELOC a few years ago they said my "debt to income ratio was unfavorable". At the time I made $50K a year and had about $600K of equity in my home. I would love to keep my current home in San Jose, CA...rent it out for a sizeable rent and let the value continue to grow. But does that mean I have to line up a job in that new location i find before I can secure my loan? And how does my rental income factor in? Thanks for any advice!
Hi Devon,
You don't need "traditional employment," you need income that can be verified - typically by tax returns - and that jives well with the payments on the debt that you currently have and on the amount of debt you are trying to take on.
Rental income 'counts.'
Hi Chris. That makes sense. I’m just trying to understand how people (that I hear about through bigger pockets) do these rental investments and use “leverage”. I guess they keep their jobs until they have enough monthly rental income to qualify for loans?
Originally posted by @Devon Carlock:
Hi Chris. That makes sense. I’m just trying to understand how people (that I hear about through bigger pockets) do these rental investments and use “leverage”. I guess they keep their jobs until they have enough monthly rental income to qualify for loans?
That or find an asset based lender. Probably not helpful for refinancing your home right now. Could help in the future for buying other properties. An option is to use a HML or PML until you have more rental income and can refinance with a bank.
@Grant Rothenberger Asset based meaning just tied to the value of the property I am putting the mortgage on? Are the interest rates less favorable? What is HML and PML?