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Derek Buehner's profile image
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Qualifying for a second mortgage with a STR

Derek Buehner
  • Colorado Springs, CO
Posted Feb 9 2023, 11:09

What should I expect when applying for a second conventional loan to purchase a primary residence, considering that I have an existing short-term rental property with a year of history and an average monthly profit of $400 after expenses, including the mortgage? How do lenders evaluate the stability and income from an existing short-term rental property when determining debt-to-income ratio? Thanks in advance! 

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Jaron Walling
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Jaron Walling
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Replied Feb 9 2023, 11:14

@Derek Buehner Where are you living now? 

Please tell me us you're renting. 

If it's a primary residence nothing outside of meeting a lenders DTI, credit, and employment history requirements. From my experience lenders use 75% of rental income towards your total, but that's for a LTR with a signed lease in place. This helps protect the bank. You'll have to show a year's worth of STR income from other properties you own to even to the conversation started. If you're a first time buyer with no track record of short-term rental profits this probably won't happen.
Found an interesting article but every lender is different so take the information with a grain of salt;

 https://www.maruet.com/blog/sh...

Derek Buehner's profile image
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Derek Buehner
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Replied Feb 9 2023, 11:44

Hi Jason, yes I am renting an Appartment as my primary residence currently. That lease ends this summer. The short term rental was my first home purchase. I lived in it and rehabed it before I listed it as a short term rental. At that point I rented an Appartment to live in. ( I looked Into qualify for a second house at that point but there wasn’t a long enough track record on the str) so I’m curious now how after a year of history the numbers will be considered. 

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Replied Feb 9 2023, 12:16

They typically want to see 2 years worth of tax returns to confirm STR income.

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Replied Feb 9 2023, 19:28

What about builder financing on a brand new home? They might be more flexible. Don't know if there is a lot of new construction going on in your area, but worth a shot @Derek Buehner.

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Replied Feb 10 2023, 06:27

Look into DSCR loans for this. Debt service coverage ratio. They allow the projected or actual income to be used as "your" income. I'm not a lender, so I defer to my partners on this. Lots of good ones giving advice here. I also have some great recommendations if you need them. Feel free to message me.

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Replied Feb 10 2023, 06:28
Quote from @Derek Buehner:

What should I expect when applying for a second conventional loan to purchase a primary residence, considering that I have an existing short-term rental property with a year of history and an average monthly profit of $400 after expenses, including the mortgage? How do lenders evaluate the stability and income from an existing short-term rental property when determining debt-to-income ratio? Thanks in advance! 

Lenders can use the income on your tax return to help offset the str mortgage (only 1 year is needed). I would recommend having a lender calculate your dti so you know exactly what you qualify for! It’ll really depend on how you file your taxes and how much you claim in expenses. 

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Replied Feb 12 2023, 09:22

You will need 2 years tax return history of POSITIVE net income on the property. 

The way my strategy works is to lease out the existing property that is at least 125% of the mortgage amount (so long as its true) and that is the workaround. The lender will be able to write off the existing mortgage as if it didnt exist according to your DTI.

Good luck

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Replied Feb 13 2023, 16:52

@Derek Buehner many banks/CUs have overlays requiring 2 years tax return history for STRs, but if you work with a direct lender like Academy Mortgage, we can use just 1 year on tax returns for income qualification.

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Replied Oct 28 2023, 16:26

@Jose Falconett Could you please share some of the lenders you have used with your workaround for qualifying for a 2nd mortgage? 

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Replied Oct 30 2023, 09:59

This will depend on  the lender you work with and how you file your taxes and claim income vs expenses. Doesn't always pay to not claim income on your taxes :)

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Kaylia Robertson
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Replied Oct 31 2023, 04:47

Good day Connor. Thank you for responding. I always report income I make. We are currently under contract for a single family home to use as a primary residence (househack #2). We were approved by a lender. Now they are saying that we cannot use the rents collected on my current residence to qualify for a primary residence, only an investment property. They are saying that we need more income. 

We need a lender fast who will work with us. Inspection is scheduled for today. Any suggestions. Anyone? 

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Replied Oct 31 2023, 05:10

@Kaylia Robertson I did a quick search for a mortgage broker in Colorado Springs, there are several. I would reach out to to to several of the brokers and explain to them your situation and ask for advice. I would also check search for local credit unions and chat with their mortgage specialists.
Good luck!

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Replied Oct 31 2023, 05:56

Thank you Richard.

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Replied Oct 31 2023, 08:00

Two years of tax returns, or if you can't wait, go the DSCR route.

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Replied Nov 1 2023, 05:13

Thank you Zach

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James Carlson#3 Short-Term & Vacation Rental Discussions Contributor
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James Carlson#3 Short-Term & Vacation Rental Discussions Contributor
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Replied Nov 1 2023, 11:42
Quote from @Kaylia Robertson:

Good day Connor. Thank you for responding. I always report income I make. We are currently under contract for a single family home to use as a primary residence (househack #2). We were approved by a lender. Now they are saying that we cannot use the rents collected on my current residence to qualify for a primary residence, only an investment property. They are saying that we need more income. 

We need a lender fast who will work with us. Inspection is scheduled for today. Any suggestions. Anyone? 

This isn't exactly what you're asking about, but it made me think about new rules just announced that allow for rental income from an ADU to count toward loan qualification. 

I wonder if a lender would count rental income from your current residence if you showed an actual signed lease for someone moving in to your place. 

I'll send you a lender I like in Colorado Springs. Not sure if they can do it or not, but it's worth a shot. 
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Replied Nov 1 2023, 11:50

James, thank you very much for the contact, and the new info. This is greatly appreciated.