Mortgage loan qualification question (1 Viewer)

[offdee]

Quick background:

- own one investment property presently.   Fully rented with stable tenants and positive monthly income from rent after mortgage/taxes (approx. +$180 per month).   Principle owed on the place vs. what I could sell it for is about equal....not under water on it, but also not going to walk away with any kind of significant payoff. Consider it a break even if I decided to sell it

- own a one bedroom downtown condo that is my primary home presently.  If I sold it I could probably walk away with around $15K.  Again, nothing significant, but not under water on it

My question is this...

Within the next 2 yrs I'm looking to qualify myself for a mortgage for a new, larger house in the suburbs.   Would be taking out loan in my name only.  And I'd like to be able to get as high amount of a loan as possible. 

What would be the most beneficial scenario for me from the lenders perspective to have going into the loan qualification to get approved for the highest amount?

A) Sell one of the two above properties prior to trying for loan...so, would only have one other property loan to my name going in (If so, which one is the better one to sell....investment property or my d'town condo?)

B) Sell both of the above properties prior to trying for the loan...so, wouldn't have any other property loans to my name going in

C) Keep both of the above properties...continue renting out the investment property as always, and also now rent out the d'town condo as well (which would get me probably around +$200 positive income per month). I would then go into the loan qualification with two property loans already to my name.

Thanks in advance to the wise FFA!

 

[gianmarco]

If you were to lose your renters and you can't rent out your current condo, could you afford all 3 mortgages on your current salary?  That's going to be a major question I would think. 

 

[offdee]

If you were to lose your renters and you can't rent out your current condo, could you afford all 3 mortgages on your current salary?  That's going to be a major question I would think. 

Could I do it, probably?  Would I struggle to do it, probably.

I guess that's what I'm trying to figure out here of how a bank would look at this given the info I gave.   I fully expect and intend to go into the loan qualification process with the rental property fully occupied and I don't expect it to be a problem to find a renter for my dtown condo.

I'm just wondering how the bank would look at these scenarios....is already having 2 mortgages to my name (even if both have positive monthly income) going to still force them to approve me for a smaller loan than if I didn't have any other mortgages to my name?   (example: sell the investment property prior, and then make the new house purchase/loan contingent on me selling my dtown condo first)

 

[Dragons]

Rules seem to change frequently as banks try to stay ahead of the people trying to buy before walking away from their underwater mortgage, but when I looked a few years back, the bank wanted 30% equity or at least 12 month landlord experience to use 75% of the monthly rent to qualify as income. The debt would still qualify as debt.

 

[Juxtatarot]

The lender will be basing amounts off your debt ratio.  The rental income is often an average from the last 2 tax returns.  Depreciation is added back.  Your rental mortgage is excluded from the ratio.

 

[offdee]

UPDATE: talked with a mortgage professional and found out that my best scenario for highest new loan amount would be:

- keep the investment property as through many years of taxes I can prove its been a long term positive cash flow for me. The bank will look at this like a 2nd small income/positive cash flow

- sell my downtown condo. I don't have any long term proof of successful renting so that will be looked at as pure debt 

 

[Ministry of Pain]

UPDATE: talked with a mortgage professional and found out that my best scenario for highest new loan amount would be:

- keep the investment property as through many years of taxes I can prove its been a long term positive cash flow for me. The bank will look at this like a 2nd small income/positive cash flow

- sell my downtown condo. I don't have any long term proof of successful renting so that will be looked at as pure debt 

You could keep the condo if you had enough income. The bank will believe you are going to buy the new home with the intent of living there. Going from a condo to a SFR is believable. 

-What's not believable is when a home owner says they are moving from a SFR to a place with multiple units.

Good luck Off

 

[jon_mx]

Getting a loan as large as you qualify for is not the best idea.  Being house poor kinda sucks.  You are a complete slave to your mortgage and there are always more expenses than you plan. 

 

[offdee]

Getting a loan as large as you qualify for is not the best idea.  Being house poor kinda sucks.  You are a complete slave to your mortgage and there are always more expenses than you plan. 

Yeah I understand. There's more backstory here that is boring and don't really need to get into, but long and short of it is that me and gf are planning to combine lives in this new place. Unfortunately her divorce and deadbeat ex not paying any child support has left her credit in some rough shape. So I will be getting new house under my name, much higher salary/savings and good credit only, but we will have her income contributing to the mortgage payments as well (but bank obviously won't consider that).

ETA: to clarify, gf doesn't have any credit card debt, just bad credit score that she's trying diligently to improve over next few years. 

 

[Juxtatarot]

I'm not sure if you do your own taxes, but one thing I've noticed about borrowers with rental income is the amount they think/say they make and the amount they show on their tax returns can differ greatly.  If you don't scrutinize your own returns, you may want to take a second look at your Schedule Es.  

 

[BassNBrew]

I wish you the best offdee.  I can't refinance my second on my primary right now because of some new formula the bank is using.  I only owe about 65% on it with the second.  I own several rentals.  Credit score is fair, never a late payment, 10 years history,  and I clear the debt to income.  the rules are so stacked against the small investor right now.

eta - Where I'm going with this is that they'll likely change the rules on you down the road so be prepared.