How do you buy a second house?

Question

Hello everyone,

I just have a general question about the strategy of house hacking, I understand that the point of house hacking is that after a certain amount of time you buy a different a new property and then house hack that property until you get to own x amount of properties and create a good portfolio. The part that I am a little confused or not truly understand is how do you get to buy a second house, Im assuming that you need to take a second mortgage but by doing that wouldnt you receive a much lower loan amount since youre in debt because of the first mortgage, or your dept to income ratio is higher that you would qualify to a good amount to get a second mortgage.

If anyone could help me understand this it would be much appreciated!

Thank you!!!

Matthew Kwan · Answer

HI Luis, you can house hack every year and converting your current primary into an rental property, which allows you to increase your income and max borrowing power. It's very important do to your house hacking on your first 3 deals to assure that after moving out from your primary, and still being able to have net + cashflow. Typically, you can have up to 10 active mortgages per person, but you can always do a cash out refi and payoff your active loans to that you can keep acquiring more properties and not exceeding the mortgage limit/person @Carlos Valencia @Albert Bui

Tanner Pile · Answer

@Luis Ramirez

When you go to buy your second property you will need to have a lease to give to the lender to prove the mortgage of your first property will be covered.

This is always strange because you need to have a tenant organized to live in it before you even move out. There are some creative ways to work around it... just don't tell your lender how hahah

Caleb Brown · Answer

The rent from the first house you bought would help with the DTI. House hacking can be done multiple times but it will make it harder after each one(with the DTI). BUT if you bought 2-3 that'd give you a good launching pad where you can leverage those properties to scale up. It is like a snowball. If you house hacked 3 properties after 2-3 years you can 1031 those into something else or just let them get paid down by the tenants. With appreciation and rent growth you will be doing good as the years go on

Konstantin Ginzburg · Answer

A percentage of your rent from the first property is counting towards your income. If the cash flow from that property is high enough, you are able to essentially counter the full mortgage payment for that property with the rental revenue. This will allow you to take a second mortgage at an equal value once you are ready to move to that step. This is assuming that your rental revenue is high enough to fully offset your mortgage since this will affect your DTI ratio. The DTI ratio and your credit score are the two primary numbers that will determine your mortgage terms with a lender.

Dennis Muno · Answer

There are multiple ways to do this:

1. After 6-months to a year, you could pull some of the accrued equity on there to go buy another property.

2. You could do a cashout refinance on the property.

3. You could do a DSCR loan for your new property. DSCRs are based on the income the new property will make with usually little to no downpayment, just closing costs. You qualify for a DSCR loan based on your DSCR ratio. If the property rents for $1500 and the PITI expenses(loan principal, interest, insurance, taxes) will be total $1000, then you DSCR ratio=

Rent monthly/PITI monthly total=$1500/$1000=1.5. Lenders usually lend at a DSCR 1 and above with great terms. DSCR ratios below 1 will have higher rates. Many investors use this because your income is not considered, rather what the property income will be vs the PITI monthly. If you have decent credit that helps too.

3. Hard money loans

4. Private money loans

5. conventional money loans

Ryan Thomson · Answer

@Luis Ramirez great question! You are  getting deep into it now....

If you have been showing your income on your tax return, you should be able to use that AND/OR a lease for the unit you rent to cancel out most of your debt (in the DTI calculation) for your current mortgage. You can also get a lease lined up for the unit you live in. That will count as income to help you qualify for the next house hack. Then you can use your w2 income to qualify for the next primary residence.

Simon Ashbaugh · Answer

Rent from the first home will count towards income on your DTI. If its still not enough consider DSCR products. Generally they will require 20-25% down, but they ignore DTI and rely on credit and the new property's income!

How do you buy a second house?

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