Question: I currently have a primary residence, a vacation home/rental and a rental property, and have a loan on each of these three properties. Would like to buy another rental property but debt/income ratio is too high and was told that I could not qualify for another loan. Have a combined of approximate $140K equity in three properties, and $70K in 401K. Also had $25k in saving account for down payment. I'd like to know how to leverage the 401K balance to qualify for a loan to buy a $100K rental property. Will appreciate any suggestions you can offer.
Answer: Hi Pei, there are a few options that you may have available. First I'd recommend that you totally exhaust your banking options. Try 10-15 banks to see if they'll give you the $75k loan. If that doesn't work out, find out if you can barrow against your 401k. As you may know (based on the way that you phrased your question), many plans allow you to barrow up to 50% or $50,000 which ever is less. That would give you access to $60,000 (including your $25k in savings). If the bank won't loan you the remaining $40k, you may be able to find a seller that is willing to carry it back by way of owner financing. Another option is to partner-up. Maybe a friend, family member or a colleague will be willing to invest with you. You can structure it anyway that you want but if you're looking to buy a property for $100k then maybe you can own 60% of the property and your partner can own 40%. Also, having 2 years of rental income and equity buildup may put your Debt to Income Ratio in an acceptable range, so you could use a short term loan until you have the second year of rental income,but make sure that will bring your DTI to an acceptable level before you try this or you could end up with a high interest loan and no way out.
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If you have a different opinion or just something that you'd like to add, please feel free to leave a comment below.
This is not legal advice. Please contact an attorney for professional legal advice.
If you have a different opinion or just something that you'd like to add, please feel free to leave a comment below.
This is not legal advice. Please contact an attorney for professional legal advice.
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