Voy B, Home Buyer in Austin, TX

Advice on the mortgagability..for investment (rental) property

Asked by Voy B, Austin, TX Sat Nov 12, 2011

I have 2.1yrs of the credit card history, score from 724-740, steady job,have been employed from 2006 with the same company as per W2, however have only been in the US for 1 year and 8 months- transfered from the UK. Permanent resident. 100% equity in my home and 30-40% down for the rental. I am looking to buy a rental in the next 6 months(pursuing a realator's licence right now), but also considering financing a car (to have no more than $300/month payment)- can the car hurt my score at all? Some say that it will only help me, because I have a loan repayment history... looking for 15 years fixed with really low interest...Any advice regarding that will be appreciated...Most comprehensive answer will get my business...

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Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Thu Nov 17, 2011
Will the $300/mo car payment prevent you from qualifying for the amount of mortgage you are seeking with the amount you intend to put down?

If the answer is "no", then it would not impact your mortgage because even if it does impact your score, when you take a term of 15-years or less, the credit score no longer impacts the type of interest rates you get when you are using conforming (Fannie Mae/Freddie Mac) financing - see https://www.efanniemae.com/sf/refmaterials/llpa/pdf/llpamatrix.pdf and notice that the adjustments are for loan terms greater than 15 years.

And financing something new usually does impact your score - because of the credit inquiry & having a new trade line report. New trade lines often hurt scores for a few months afterwards, then from that point forward the scores will increase at a higher rate than they did before because you will have one more positive payment reporting each month than you did before.

How do you know if your $300/mo car payment will prevent you from qualifying? You'd really need to speak with a mortgage professional to see, but in general for investment property financing you want to keep your total debt ratio to 43% or less - including your current housing expenses (you say you have 100% equity - own it free & clear? still have to include the property taxes/insurance though) and the proposed housing payment too. If you have a renter lined up (or already in the home), then that rental income can go towards qualifying if you use a Fannie Mae loan program (Freddie Mac requires a 2-year landlord history though, so if you are planning on using rental income to qualify and don't have that history, seek out lenders who can offer Fannie Mae loan programs)... in that situation 75% of the rental agreement amount goes towards offsetting it's housing expenses (any excess over the housing expense gets added to your qualifying income).
1 vote
James Anders…, , The Woodlands, TX
Sat Nov 12, 2011

I work with investment properties throughout the state of Texas. Foreclosures. My best source of information would be Mark Bailey.
Mark is the senior loan consultant with JPMorgan Chase and handles the
financing side for REO properties.
Mark is my point of contact with
JPMorgan Chase for all their
properties, and I refer him on other
foreclosed properties I manage that are not offered for special incentives, or in-
house financing incentives by the lender. I believe Mark can best answer
your questions for your investment opportunity however, seek advice from
your financial advisor, and attorney as
well concerning your overall financial portfolio and your desires for investing in real estate. Good luck in your
investing! James Anderson,
0 votes
Deann Morales, Agent, The Woodlands, TX
Sat Nov 12, 2011
It alll depends on your debt to income ratio. If you have no other debt, or very little, then a car note that is paid on time will help your credit score and show that you can handle paying several different bills. It will hurt your credit score in the beginning though because the car finance companies will be checking your credit and this will cause it to go down temporarily. So, as long as you plan on waiting a few months to buy your investment property, you should be fine. That will also put you over your 2 years residence mark which will also help.
Good Luck!
Please let me know if I can help! Check out my website at http://www.deannmorales.com or call me at 281-352-2975
DeAnn Morales Coldwell Banker, United The Woodlands
Web Reference:  http://www.deannmorales.com
0 votes
Jim Simms, Mortgage Broker Or Lender, Louisville, KY
Sat Nov 12, 2011
Car loans are a lot easier to get than a loan on a rental property. Arrange the mortgage and purchase the rental first, then buy the car.
0 votes
Roswell Moore…, Mortgage Broker Or Lender, Scottsdale, AZ
Sat Nov 12, 2011
Don is correct, Voy. Hold off on the car until after you purchase your investment property & you will increase your chances of qualifying for your loan. You do not want to jeopardize your debt to income ratio which is critical when qualifying for your investment property loan.

In my opinion, your best option is to schedule your closing after you can provide two years of US tax returns, you should then be able to qualify for a minimal 20% down loan, although you will receive better terms with 25% down, and if you find a Fannie Mae home for sale, you may be able to qualify & use their HomePath financing, which for investors, allows just 10% down with no mortgage insurance. Check out: http://www.trulia.com/blog/roswell_moore_cmps/2011/05/specia… it's a little dated, but the seller paid closing costs are limited to 2% for investment properties.

Please feel free to contact me if you have any further questions, I'd be glad to help.

All the best,

Roswell Moore, CMPS
Certified Mortgage Planner
480-422-5095 direct

We are a Direct Lender, Mortgage Bank where we originate, process, underwrite, fund, AND SERVICE our loans, in-house, with FHA (starting at a 580 score AND still only 3.5% down), FHA Streamline loans (no minimum credit score, no appraisal required) Go Green rehab loans, HomePath, Investor Friendly (10 financed properties), VA, USDA, Jumbo, Conventional, plus, we allow Escrow HoldBacks!
0 votes
Don Tepper, Agent, Burke, VA
Sat Nov 12, 2011
Buying a car will hurt your chances. Talk to a loan officer or mortgage broker, who can tell you whether the impact would be minor or significant. A lot will deal with your debt/income ratio. If you're earning $1,500 a month, it'll hurt a lot; if you're earning $7,000 a month the impact will be far less severe.

Also, talk with an accountant about whether putting 30%-40% down on the rental is the best move. It'll certainly reduce your payments. But will you have enough liquid assets after the purchase. Also, if you're expecting the property to appreciate in value (and you should; you shouldn't be buying a property you expect to lose value), you may want to increase your leverage a bit by putting less down.

Hope that helps.
0 votes
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