The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Thor on October 13, 2014, 02:22:03 PM
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Currently, I own and live in a single-family home. I am looking to purchase a duplex. My income is limited, so I wouldn't qualify for both these mortgages without the inclusion of rental income in my DTI numbers. I am wondering what lending requirements exist for me to keep the single-fam home, rent it out, purchase the duplex, and move there. How complicated would this be? Do lenders require I have my single-fam house leased before they'll let me purchase a duplex?
I'm hoping someone might have some first-hand knowledge/experience on this. The primary objective is essentially to obtain an investment property through the use of owner-occupied financing. I am of course planning to occupy the duplex after purchase.
Thanks!
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Go straight for a 4-plex, far better deal.
4 units is the maximum size that still qualifies for a standard mortgage, so you don't need to pay commercial rates. It gets even better if you actually LIVE in one of the units as owner, and manage the rest.
Buy right, and get the right tenants (ones that won't bother you for every, little thing, just because you live right there, you have to set boundaries right away), and it's easily possible to live with NO personal housing costs of your own, and even make some money.
Good luck having a duplex even come close to covering your mortgage costs, and then you are at the mercy of a single renter not paying if you can't carry all the costs yourself. Spreading those costs to 3 separate renters in the 4-plex, is much smarter.
P.s. Look for buildings that have separately metered apartments, it's worth paying a little more. If you pay common heating or water, etc, there's NO incentive for your renters to control their heat or water use to save costs.
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Good luck having a duplex even come close to covering your mortgage costs, and then you are at the mercy of a single renter not paying if you can't carry all the costs yourself. Spreading those costs to 3 separate renters in the 4-plex, is much smarter.
It depends on the area. In good investment areas it is very easy to find duplexes where one side can cover the mortgage, taxes, insurance. Also a quad-plex is likely to be more expensive and thus harder for OP to qualify for.
As to the original question the banks I have spoken to will not count rental income unless it has been rented for 2 years. However even if you do qualify make sure that the duplex makes sense from a numbers stand point. Basically look for places that are doing better than the 1% rule.
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I've had lenders not count rental income unless it has been on your tax returns for 2 years, but others have been more lenient and just need a signed lease so it really depends.
I doubt any lender would be willing to consider rental income if you don't have a lease in place.
Good luck.
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We own 5 rentals and 3 have been previous personals. The answer to how they qualify "depends". The biggest variables are your lender. We got through mortgage brokers (non bankers) as they have been the easiest. The thing is every company has different "rules". Think of Fanny Mae as "federal" and the brokers and banks as "states". They are not be more linnet than "federals" rules but they can be stricter. So always ask around. I have done 5 different deals with 4 different places and every place has different rules.