How to get financing when I don't have enough income

Question

My sister and I are trying to get into real estate investment. My sister was going to put the loan in her name and we were putting in both our money for the downpmt and closing cost. However she could not qualify for a loan over $100k due to her income and the bank would not give out loans less than $100k.

We found a single family home we wanted to purchase for $60k, as traditional or short-term rental property, since it's less than $100k we could not get the mortgage. Should we try to get a hard money loan? What are our options?

Mary M. · Answer

@Khalilah Craddock  you might contact a mortgage broker as they can access many lenders....    IMO you can get a loan for a rental property and they can use 75% of the rentals income to qualify for the loan,.   this might be of use.   Have you thought of buying a duplex and living in one and renting the other? this might also help ....  maybe do a google search for "mortgage broker" in your area and give a couple a call.  good luck!  oh!  do not do a hard money loan for a purchase like this - this is not the purpose of these types of loans.

Khalilah Craddock · Answer

@evanpolaski @Ondrej Brown ,thank you so much for answering my questions. we spoke with 2 lenders. The first lender my sister was pre-approved for an FHA but my mother was the co-borrower. However my mother decided to pull out because she wants to buy another house in two years and she already owns a home.  So my sister tried to get pre-approved on her own with another lender but her income was not sufficient for a FHA loan or conventional loan. The 2nd lender also stated that they can not approve anything under $100k.

I lost my job due to covid so I can not co-borrow with my sister. But I have the cash to gift her for the down payment and closing cost.

Khalilah Craddock · Answer

@Michael Glist thank you for your suggestions and offering to answer any more questions I may have. What type of lender will do investment property loans that are based on the properties ability to generate enough rental income? Is it private lenders or hard money lenders?

Evan Polaski · Answer

@Khalilah Craddock, how many lenders have you called?  I have closed on several loans with balances at or below $100k.  Granted, these were commercial loans held on bank balance sheet.

Michael Glist · Answer

I would suggest contacting a few more lenders and also looking at lenders that specialize in investment properties. Most conventional lenders will have guidelines such as DIT ratios that will make it harder for you to qualify for an investment property without having at least 2 years rental income history. But there are lenders that will do investment property loans that are based on the properties ability to generate enough rental income to cover the mortgage as opposed to making sure that you as the individual have enough income to cover the mortgage plus your personal residence and all your other bills.

Loans under $100,000 are more difficult but not impossible.

I hope this helps. Feel free to reach out if you have any additional questions or need clarification on anything I said.

Ondrej Brown · Answer

Have you tried asking for a FHA loan with the banks. That allows a person to put 3.5%  money down of the purchase price. So for an example if you guys found a house for 100k. With the FHA you only would put $3,500 down payment on that 100k house. Ofocurse FHA has strict conditions for the property you looking at.