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Aoibheann Cl…, Home Buyer in Sun Valley West, El...

Want to buy a multi unit property for investment & was told some of the rental income could be used for the down payment, true? This is all new

Asked by Aoibheann Clarke, Sun Valley West, El Paso, TX Mon Jun 27, 2011

to me I don't know anything about this kind of real-estate purchase :-)

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Rental income can't necessarily be used for the actual down payment. It is factored in when applying for a mortgage, some banks allow up to ~75% of the rental income to be factored into your debt to income ratio.

for example:

say you make $5,000 a month and your only debt is your current mortgage which is $2,000 a month. Your debt to income ratio is 40%. You want to buy an investment property which will cost you an additional $2,000 a month for that mortgage, would bring your debt/income ratio to 80% which is pretty high and banks don't usually take that risk.

Now lets say that investment property will bring in $3,000 a month in rent, the bank may allow 75% of that to be used as income 3,000 * .75 = 2,250 that would bring your monthly income to $7,250 with your debt at $4,000 a month.

That would now put you at a debt/income ratio of 55% which is a little more reasonable.
1 vote Thank Flag Link Mon Jun 27, 2011
If you are buying (meaning you do not own it yet) a multi-unit property then you cannot use any of the rental income for down payment or it'll have implications - as the rental income belongs to the owner (the seller) so if they were to give you any of their rental income as the down payment it is treated as an "inducement to the sales price" and would reduce the value the lender uses $4$ - meaning if you are buying a place for $100,000 and it appraises for $100,000, and the seller gives you $1,000 (for whatever reason) then the lender treats the value as $99,000 and will base all loan-to-value calculations off of that.
0 votes Thank Flag Link Mon Jun 27, 2011
Hi, Aoibhean. Currently for Conventional/Fannie Mae financing for investment properties, you'll need 25% down, and your deb to income ratio can't exceed 41-45%, depending on your credit score and the lender.

Rental income can be used if seller has disclosed it on his/her tax returns for the past 2 years and has rental/lease agreements. Only 75% pf the total income from currently occupied units may be considered. However, this latter requirement utlizing income from occupied units only may vary from lender to lender. Good luck.
0 votes Thank Flag Link Mon Jun 27, 2011
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