How can I prepare for financing at age 20?

Question

I am 17 years old and trying to do everything possible to get ready to jump into REI by age 20 with a small multi family property (3-4 units) in my college town that would allow me to house-hack. My main problem is preparing for the financing on the property. The FHA loan seems like a good choice for me though I could likely afford the down payment on a 85-90% LTV loan from a portfolio lender if the FHA is too strict.

Assuming that I will be a 20 year old student with a standard w2 job, I doubt that lenders will jump at the opportunity to lend to me.

What can I start doing and thinking about to create the best chances of obtaining a loan from a lender at age 20 with less than ideal income?

Thanks guys!

Dan Sheeks · Answer

Hey @Jaden George. Congrats
 to you for your ambition! I am willing to help you out with some advice
 or even chat on the phone if you wish. But I recommend you read this 
article I wrote for Bigger Pockets titled How to Invest in Real Estate Before Turning 21.
 Once you've read it, let me know your thoughts and if you have any 
questions.https://www.biggerpockets.com/...

Lola Omishore · Answer

Hey Jaden!

Another young BP member had the same question in a different post a few weeks ago. So I’m going to copy what I wrote there as it applies to your scenario as well.

“To apply for a mortgage using an FHA loan, you will have to show two years of your federal taxes that demonstrate your annual income. This income will determine the price range of the homes that you will be able to afford. Right now, the key would be to get your credit score to be at least 680 or higher.

Then have two years of full time work w-2 salary with paystubs and federal tax returns.

Google “how much house can I afford calculator” to determine what price range you should be searching in with your current wages/salary/monthly recurring debt.

Save 3% of the total amount of targeted price ranges for the houses you intend to purchase.

Google "DACA" to learn more about the home buying process for FREE with in person, step by step assistance along the way and possibly get help with closing costs as a first time homeowner.

After two years of salaried work, bringing your credit score up, having a 3% down payment, then go to a local bank and ask to speak with a loan officer(s) regarding applying for an FHA loan.

Also, keep an eye out for your revolving debt. About a year before you’re ready to purchase, pay down any monthly recurring debt that could be considered substantial in comparison to your income.

Bob Okenwa · Answer

@Jaden George

Make sure you are covered in the 3 C's of credit when trying to get a mortgage:

The first C is character—reflected by the applicant's credit history.

The second C is capacity—the applicant's debt-to-income ratio.

The third C is capital—the amount of money an applicant has.

You'll want to open a credit line or two and use it responsibly. You don't need a 10k credit line. It can be just a few hundred dollars. Pay your bills on time and don't let balances sit and accrue interested. Trended data is used and lenders will look to see how much of a payment you're making and what kind of balances do you carry each month.

Credit mix (revolving loan, fixed-length loan, auto loan, etc.) helps your credit score, but that isn't something to really worry about. Just stick to the credit card and you'll build your score up.

Have your documents prepared. Lenders will require 2 years of tax returns and will want to see at least 2 years of employment history as well.

For now, you should be working as hard as possible to get your credit as high as you can. Make sure to pull your 3 free yearly reports and make sure everything on it is kosher. MyFICO allows you to purchase all of your credit scores, including the ones that lenders use (as of now, I believe most lenders still use Experian Fico Risk Model v2, Transunion FICO Risk Score Classic 04, and Equifax Beacon 5). You can look learn more about them using this link. https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/The-many-flavors-of-FICO-Editions-versions-and-variations/td-p/1197617These scores are different than the ones you'll get from Credit Karma or your credit card or bank accounts. Good look going forward.