can we get a mortgage?

[sosurreal09]

DP and I (soon to be DH) want to purchase a 3 family home and live in one unit and rent the other two. we have $15000 for a down payment then we have about $6000 for other costs ect. the house we LOVE is asking way too much for this market $469,900 and the 2 apartments need some updating...so im not to sure its the one...there is another home we like $210,000 3 family but it needs WORK.
our monthly income is only $2400-$2600 so we would essentially be depending on tenants to afford the mortgage...

do you think we could even qualify for a loan at this point?

[sanguine_speed]

I guess the only way to find out is to ask lenders.
I personally would feel uncomfortable relying on renters, but I think around here lenders will consider rental income when calculating mortgage limits.

[ChetMC]

Doesn't Sound Good

I don't think you would want a mortgage even if you found somebody to give you one.

You can't count on rental income. Sometimes a unit is vacant for a long time. Sometimes renters don't pay on time. Sometimes renters don't pay at all and it can take a very long time to collect or to evict them. Sometimes renters do damage and you need to put a certain amount of money into a place to make it rentable again. I've seen all of these scenarios happen.

You really don't want to be a landlord with a narrow margin.

[VisionaryMom]

Just thinking about that makes me panic. No, you shouldn't get a mortgage on even the $210,000 property with $2,500 a month in income. It's not wise to get a property depending on renters to help pay for it.

[sewaneecook]

I'm with some of the others here, you could find yourself in some serious financial trouble if you do get the loan and then don't get any tenants! If you don't want a house to cause issues, keep the mortgage less than 35% of your income, ideally 25%. I'd look elsewhere for income.

[just_lily]

To answer your question, here (I am in Canada, so YMMV) lenders usually will include a portion of your rental income when calculating your debt service ratio. Usually they assume about a 5% vacancy rate. But they also usually require signed leases, not just an estimate of what you think you *could* get in rent. So if the units are currently vacant you may be out of luck. A couple of years ago I was looking at purchasing a house with a basement suite and taking on the existing tenant, so the bank was willing to consider the rent as income, but I backed out of that deal for unrelated reasons.

Whether or not you should do this is another question, and I realize one you haven't asked. It definitely is a lot of risk, and people in this forum tend to be risk-averse. And usually for good reason, as many of us have been burned by less than stellar decisions. Is there a reason you are set on a three unit building? Could you maybe look into houses that have basement suites as a happy medium? A place where you could cover the whole mortgage on your existing income, and let the rent just be gravy?

[VisionaryMom]

Originally Posted by just_lily

It definitely is a lot of risk, and people in this forum tend to be risk-averse.

It's not so much risk-averse as it is just practicality. I ran a calculator assuming a $210,000 price with $15K down. I put in a 30-year mortgage at 5% (I have no idea the current rates, but that seems like a moderate starting place.) Assuming 1.25% property tax values and .5% PMI (which you would have because you're not paying 20% down). That gives you a total monthly ownership cost of $1331.

The house needs work. Where will you get that money? What will you do if you cannot find tenants or cannot find them for a time while you complete needed work. Can you live off $1200 a month for all of your other expenses and fund repairs?

Mortgage lending isn't the free-for-all it was a few years ago, so I'm not sure that you'd find a decent lender who would grant you a mortgage based on those numbers. You're talking about a cost that's 53% of your income, and that's far more than most good institutions permit.

Even if you could get approved and are willing to take the risk, think of your renters. I've rented from someone who could not afford his rental property, and it sucked. Yeah - no AC in July in Georgia because he "couldn't afford to replace the unit." It's not a fair situation to renters if you cannot cover the property maintenance costs.

As for the $400K+ house, the monthly cost would be $3100, so I don't see how you could get approved. (And I hope you wouldn't. Those kinds of interest-only loans are part of the problem with the housing crisis.)

[cappuccinosmom]

I think VisionaryMom laid it out really well.

Dh and I are landlords. Believe me, rental income is not easy income. Frankly I think it's a total pain in the butt, but it's dh's dream and he does most of the work, so I'm not vetoing anything.

$15K is a nice downpayment, but won't do you much good with a house priced that high and still needing work, when your monthly income is so low.
You could squeeze the payment out of your income if you were willing and able to live on under $1000/month, I suppose. That would at least cover months when you don't have tenants or they don't pay, but would leave you strapped and unprepared for emergencies. You cannot depend on tenants to pay on time, every time. And if they don't, then you have the costs associated with getting them out, and the time when the unit is empty to consider. (Ask me how I know this....I'm *dying* to ventilate some frustration )

If it were me, I'd keep that 15K, scrimp and save for a few more years and add to it, and then reconsider at a later date if the income is up. In the meantime, get to know some landlords and property managers, and make sure you have a solid, reality based understanding of what that entails.

I don't know that you could get a loan right now. But just getting a loan doesn't mean it's a wise thing to do.

[p.s]

I have some good news for you. And this is not meant as sarcasm or a joke. I doubt you would qualify... so you don't even need to spend/ waste anymore time thinking about this, but can move on to more practical endeavors.

Banks want at least 20% down on primary residence. You also need to show enough cash for closing costs. That would translate to about $90k for down payment (assuming someone got the price reduced), then prob >$5k for closing costs (if you paid cash) or more like $10k.

For investment properties, banks what an even higher amount for down payment. And they are currently not liking to count rental income towards expected monthly payments. This is excluding alot of otherwise hard working people who would like to be landlords, and may be a contributing factor of why so many investment/ 2nd properties are being bought with cash.

Finally, i would like to bring up the point that:
I think the first years, few years of marriage are so important. very precious time. Just like having a baby ... those first few months and years are really precious. My opinion... you don't want to spend those precious times worring about making payments.... stressing about tenants.... etc. Landlording is hard work! (having done it for many years)

how about getting a "job" or interning with a small time landlord, to learn the rope. Like you and DP getting an apt as building managers and learning first hand what a pain it is to be a landlord. Meanwhile.... build up your equity. A little farther along in life than you, I am now convinced that by plugging away at the basic essentials (commitment to hard work, dedication to education, frugal living, and most of all- be a decent person, serving your fellow mankind), prosperity will. Avoid get rich schemes or living on the edge. Not worth it.

[sosurreal09]

TY everyone for your honesty. i am not trying to get rich BTW...because our income is low and i want to be a SAHM i thought this may be a good solution to our problems. i certainly could just get a two family. the point is to have the income...but i know they dont always pay and eviction is hard ect ect. i have two close friends who are landlords. DP and i have been together 8 years and lived together 6 years so im not worried about the stress it would cause. we rent right now and i hate wasting $850 a month!
im sure it will be better to wait......

[Sharlla]

You could probably get a 140K loan on your income if you have excellent credit with little to no debt. They usually won't consider the potential income of the property as income when applying for the loan. also unless the house is in near perfect condition it won't qualify for an FHA which means you most likely will need to have 20% down. you will also need $ for closing.

[cappuccinosmom]

we rent right now and i hate wasting $850 a month!

I would hate that too. I totally sympathize.

Have you looked into forclosures and bank sales? Not to rent out but to purchase and be able to pay it off quickly. What are the forclosure prices like where you are, on smallish, single family homes?

All of the houses we purchased were under 20K. They needed work, but dh was able to do most of it himself.

Our "mortgage" was the cost of repairs really, and now that they are done, we have that much money every month that is put into savings rather than housing.