Another great question. If you were buying a duplex and it was going to be your primary, the answer is yes. However, with guidelines changing all the time and the fact they have become very strtict as a result of the real estate bubble bursting as a result of loose underwriting I would make an educated guess and say no they will not consider the rental income as part of your income. Please never buy a rental property if you need the rental income to pay any of the mortgage debt service, If you can afford it without income and then are able to produce income then consider that income as a bonus. Please never count on it.
Yes I agree with your statement but I may have another angle that we maybe able to use since all your properties are in PA and they a multi units and singles.... Give me a call when you get a chance lets chat
We tried to purchase a unit last year in North Wildwood; however, when the lender found out about the FNMA loans (like Tim Robbins suggested) all the rules changed and the deal was killed. They wanted 25% down, not 20%, wanted to add in PMI (on a 75% LTV?!) and wanted to see 6 mo's reserves for PITI on all our rentals.
Tim, do you agree that the local lenders in NWW will look at rental income x 75% = net profit? We've always taken the tax returns, added back in depreciation, and used that number for profit on rentals. If they'd take a flat 25% as income, that would help our DTI for the proposed HOA fees.
Also, based on our situation, what do you think the lenders are going to do this year? Have the rules changed from last year; that is, are they still looking for 25% down based upon our situation, or are we good to bank on a higher sale price with 20% down? Lender guidelines seem to be a lot different in NJ than PA, but you guys have the beach too :-)
Before we sign up with a Realtor and a lender, we're trying to figure this all out on the front end (as our accountant is preparing our 2010 return) so we have our ducks in a row when it's time to look for a property. Thanks again everyone for your responses.
If you were to do a lease-option (or lease-purchase) instead of a pure rental (assuming you structured the transaction properly), then you should be able to get a decent positive pre-tax cash-flow (PTCF). You could also acquire and flip this property with seller financing, and receive positive PTCF.
The way that a lender will treat the rental income will depend upon whether you opt for conventional or commercial financing. Your personal DTI is less important to commercial lenders, but the DCR (which is kind of like a DTI for the target property) is extremely important to them. They want to know that you have enough to pay your mortgage and expenses, and that you have some income left over to pay yourself. If you intend to buy more income properties, then you might want to consider getting a commercial loan, or at least talking with a few commercial lenders before you choose the lender with whom you'll do the loan.
Yes it will be added to your DTI also be carefull Fannie Mae does say 10 properties in your portolio but I can tell you this because I just a and investor buyer who had five and he had scores in the mid 800's and they drove him around the block a few times and it was a single family home in Wildwood that he purchased and tow of his investment properties were is and LLC there was still issues and his DTI was only 21. Just want to give you FYI it is even worse with Condo's must make sure that the condo Assocation is in good shape and not to many REO's or Short Sales....You need someone who knows what the banks are going to want before it happens... We closed it just was a little more work for the buyer and me...But that's my Job
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Robin below gives some very good answers in which I agree with. I just wanted to add one more specific issue. Many lenders won't go above a total of 4 to 5 properties, including your primary property. Yes, Fannie Mae allows you to go up to a total of 10 properties and we can actually allow this ourselves. Now sure if you have any other investment properties, hence why I bring this up. Just be careful when speaking to any loan officer, because such problems are sometimes not found out until near the end, then the deal could be killed.
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