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May 19, 2008
Financing strategy?
We're starting to think about moving back to Brooklyn and are trying to get our ducks in a row. We want to buy a house and we have a sizeable downpayment - in the neighborhood of $1m. But our verifiable income is only about $140k. Ideally we'd like to buy a 4 story brownstone and do double duplexes but will the bank take rental income into consideration in calculating what kind of mortgage we qualify for? I know that a year or two ago, this question probably wouldn't have arisen and we would probaby have been a shoe in due to the large down payment. Any thoughts on what the max we should expect to spend is? Thanks!
Comments
There are tons of online calculators that can help you with this. Plug in your income & downpayment and it will spit out a number you will likely qualify for.
I'd imagine with that much of a downpayment, you would make a very attractive loan package.
Posted by: Mrs. Limestone at May 19, 2008 4:37 PM
Was told at some point that banks would "allow" 80% of rental income. But there may well be other variables - such as if the rent's a big chunk of total income, what, if anything, does that do to the loan rate?
With that downpayment I'm sure you can make something happen. A good mortgage broker (I know one if you want a name) can help you.
Good luck - and welcome back!
Posted by: Johnny at May 19, 2008 4:45 PM
Mrs Limestone - I know all the mortgage calculators but they don't take rental income into account. General rule of thumb is 3x annual income for a mortgage but frankly, $1.4m doesn't really buy us anything in the area we'd like to move to. I put this out there to see what other's experiences have been with a big down payment and a not so hot (VERY relatively speaking of course...) income.
Posted by: brooklyny at May 19, 2008 5:12 PM
Go talk to a mortgage broker. They can tell you in 5 minutes what would take you days to research. Try First Merchants on 7th Ave and Berkeley Pl. Ask for Tonya Martin or Frank Gooden.
Posted by: guest at May 19, 2008 5:17 PM
I was told that typically 75% of rental income is counted, to allow for vacancies etc. But appraisal will probably have to include info on comparable rentals to support the assumption.
Posted by: slopefarm at May 19, 2008 6:08 PM
Banks consider 75% of rental income. You also have to list operating costs, and most of the time the underwriter is going to net that out.
Posted by: guest at May 19, 2008 6:09 PM
Do you really intend to put $1M down or is that all your savings some of which you will use for downpayment and some of which you of course want to keep for retirement, other investments, etc?
You may be restricted to buying places that are already double duplex. Otherwise you need a construction loan. These are almost nonexistent at this point and rates are much higher when you can find them.
Posted by: guest at May 19, 2008 6:42 PM
$1M is the amount of money we have to put down on a house. Whether that is all down payment or some of it goes to renovation is tbd.
Posted by: brooklyny at May 19, 2008 9:41 PM
You mentioned 4 stories but also double duplexes. Are you looking to purchase a 4 family and turn it into a 2 family both duplexes? 75% of rental income is considered as additinal income for you. Or rather, 75% of market rent if you do not have a proposed lease prior to purchase. sunny_hong@countrywide.com
Posted by: guest at May 19, 2008 10:10 PM
It depends on how much you're planning on spending, really. I know, I'm doing the same thing, and even with a down payment of 50%, excellent credit, other cosigners, we're struggling to get financing because of "low" income). ANything above conforming is nearly impossible. And they do calculate usable rental income in a weird way, so 75% of it is bundled in with your income, and then you can use 30% of your total income to count for the mortgage payments (rather than realizing that for most people, 100% of whatever rental income they get will go to the mortgage)
Depending on the condition of what you buy, I'd try for an FHA loan or an FHA 203k rehab loan/ mortgage bundle. FHA conforming loan limits were raised on 2 families to $900+k(Fannie Mae/ Freddie Mac weren't) There's a place in Manhattan called First American Mortgage Trust that originates them (found it on the HUD website). But beware, it's the government, so things take forever. You have to get the process started as soon as you have an accepted offer, basically, and you'll need 60+ days to close the thing.
Hope this helps!
Posted by: RAR at May 20, 2008 9:20 AM
why noy just buy something for 1 mil (or maybe 1.25?) and be done with it? Life without a mortgage would be mighty sweet...
Posted by: guest at May 20, 2008 9:42 AM
I purchased a property with two rental apartments. The bank included 75% of the rental income with my total income.
They do that because 100% of the rental income can't go to the mortgage. There are additional expenses (heating, water, etc) as well as emergencies that arise. In addition, the 75% takes into account potential vacancies.
Posted by: guest at May 20, 2008 10:07 AM
thanks all. this is helfpul as we start to stragegize. the 75% rule is good to know.
Posted by: brooklyny at May 20, 2008 10:54 AM
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