Qualifying for a Loan for San Francisco Investment Property

I have clients looking for all sorts of real estate in San Francisco, from low priced condos and TIC’s that work great for first time homebuyers to larger single family homes for the growing family, to real estate investors that want to take on the task of owning and managing rental property.  I work with both seasoned investors and those that are just now getting their feet wet. 

I recently got an inquiry from a client interested in pursuing a multi-unit building in San Francisco.  He’s looking to occupy a unit and rent out the others and was curious to find out how the rental income would be considered when qualifying for a loan.

As I often do, I turned to Marc Geshekter (one of my favorite mortgage brokers in SF) to see if he could shed some light on the topic.  This is what he had to say:

When buying a 2-4 unit residential building to be used as a primary residence the buyer/borrower can use a portion of the rental income gained from each rental unit when qualifying for the new loan(s).  Most underwriters will allow the ‘net rental income’ to be used during loan qualification provided current lease agreements are in place and can be properly documented.
During the underwriting process ‘net rental income’ is calculated by taking 75% of the gross rental income (-) the monthly mortgage payments (-) the monthly cost of property taxes (-) the monthly cost of insurance (the building insurance).  Here’s an example:
Gross monthly rent collected:  $10,000
Rent roll at 75%:  $7,500
Monthly mortgage payment:  $4,500
Monthly cost of property taxes + ins.:  $2,000
Net rental income = $1,000
In the example above the building as an investment property is cash-flow positive and could potentially add $1,000 per month to the gross monthly income used to qualify for the new loan(s).  These are standard underwriting guidelines.  Some lenders do institute additional underwriting guidelines pertaining to using investment property income when qualifying a buyer for a new mortgage loan.  For more information relating to investment property purchases in the San Francisco Bay Area please feel free to give me a call at 415–354–5162.