Bankers Formula? Those Who Have More Than 3 Rentals
I'm a newbie at this but I'm itching to get going. I had to devulge everything (almost down to my dogs name) to my bank in order to get financing on a REI that I intend to do modest repairs to and rent out. I am buying a smaller home with cash next week which is going to require some more extensive work which I do myself.. My question is this...After you finance say two or three homes and it becomes obvious that your income to debt ratio is soon going to exceed a lenders formula do they (the banks) start looking at your rent as the payment and income and just blow it off and lend money to buy more properties? Or do you have to have enough capital in the homes you are renting before they will extend you more credit on the premise that your houses could go without tenants and you are stuck making the payments? Do they use a 90% occupancy formula with single family homes like apartments? Thanks...Hope someone knows the answer 
Lenders look at all your income from all sources, and consider all your liabilities. Usually only 75% of your rental income is allowed but 100% of your liabilities are considered.
In addition to your debt service and income, lenders look at your credit score, and your other stated assets before deciding whether you are creditworthy enough for a loan.
I have never had a lender apply a vacancy factor before doing their income calculations. By only allowing 75% of your current rents, a vacancy factor is already built into the calculations.
The key here is to have your net cash flow equal to or greater than 25% of your debt service. That way, the 75% rent allowance has a neutral effect on your debt/income ratios.
Thanks for that valuable info. So for instance...your rental house payment with insurance and taxes is say 300.00 and you rent it for 400 you then have the needed 75% and in turn "cancel" the loan per se. I guess anything over the 75% is gravy. I guess a person should then always try to target a holding that is going to net the needed 25% more than the house payments so we can buy more.
I do not know what it is called, but some lenders will not give you more than X number of loans. I am building a relationship with Washington Mutual because they have some very investor friendly programs and they have extremly low costs. WaMu has no limits on the number of investor mortgages. They also have no seasoning requirements for a refi at 70% LTV.
Brenda
Some lender programs WILL not count ANY of your rent as an asset until you have 2 years of experience as a landlord and after that only 75% of rent counts. I am selling a rental propery now to newbie investor. We were able to find a program for him, where they are counting the rent from the leases I have in place now. (they are all at least a year old sec8). But to qualify for this program you need a credit score of 720. Before I had my 2 years in, I ended up using a loan broker who took me to a commercial bank where their underwritting standards weren't as bad, but at higher loans fees and interest. By the way, if anyone knows of good commercial banks or even hard money lenders that like working with investors please pass on information. Thanks,
I deal w/small bank and the VP personally thru a mutaul friend. Although I had poor credit in the past(al most filed bkrpcy in 1997) I did buy one duplex cash and used that and 4k to buy a 100K quad and used both to by a duplex 52K with only 500 down--all since sept 03 and am trying to get a triplex 70k, (the offer is in and I an waiting) but he said he will need more than 500 down on this. So far everything I have is rented and all appraisals come out super high. I did do one roof and some painting and minor 10k (total) of improvements, But the bank seems to like me--They tell me all props are neat, clean, well lit, look good from the outside, and all props are with 8 blocks ........I think that is the key.
I just needed a friend to get me an inside line---- as far as rates, the best I could get was 15 year at 6.5 with adj up to 2 pnts at years 5 anf 10. also I had to pay 1 point but no PMI> NOT great---but not too bad.
[ Edited by jenkie01 on Date 03/06/2004 ][ Edited by jenkie01 on Date 03/06/2004 ]
As a sidenote I spoke with my WAMU rep the other day and she stated that they were going to put limits in place in 2004, I think 10 properties was the number she gave...
75% seems to be key.
I have 3 loan requests out with WAMU right now. They seem to be just about the only bank left doing cash-out no seasoning refis (Another downside to buying with hard money).
I will try to stay away from hard money in the future because of seasoning issues. If you move quick, you are stuck with 2 choices: Pay interest only for a while or refi with a shrinking (and more expensive) lender pool.
When does seasoning drop off as a factor? At 6 months or 1 year?
Also, does anyone have any recommendations for other banks doing no-seasoning cash out refis?
JohnCl
[ Edited by JohnCl on Date 03/08/2004 ]
I asked my local banker if they were going to put limitations on me regarding rental purchases. She told me as long as I can show a year's lease on each rental, they would not limit me on future loan requests. Rates are darn good too.
Love those local "little" guys.
They're hungry, too.
I'm working on number three in the past month.
National City Mortgage just told me that their investor team likes less than 10 properties for those they lend to.