Do I need 30% equity to qualify for financing?

[Richard McNeal]

I just got off the phone with a lender who said I won't be able to get (traditional) financing anywhere unless I sell my house.

I have one rental property with about 10% equity. I'm currently living in a property with about 5% equity. I want to buy another property and move in to it. The lender said they couldn't count rental income unless I had 30% equity in each property, and that that's pretty standard from all lenders. 

Is this true? How do I keep both properties and get the third? -- I'm not getting up to 30% on either property any time soon.

Thanks!

[Edward B.]

I have never heard that but then again it has been a long time since I qualified for a conventional loan. I remember when they just took 75% of your rental income and applied that to the mortgage in order to determine the hit or help it applied to your debt to income. Then they switched to requiring 2 years of tax returns. That was better because it showed what you were actually clearing on the properties but assumed that the underwriter knew how to back out depreciation, which in my experience not all did.

Banks often have arbitrary standards and apply them as a one size fits all, and it rarely fits the average real estate investor. I would say shop around, maybe find a good mortgage broker. However, most banks will be looking to sell your loan in the secondary market or at least have that option, so if this is a new standard you may be stuck.

There are always other ways to finance deals. I would look into that before I poured money into properties that are cashflowing just fine. Personally I don't believe in locking your money up in a property; there are much better returns to be had elsewhere.