As a university student who only works part-time, how much work history do I need in order to be eligible for a mortgage to purchase a rental property?
I am a full-time university student interested in buying rental property in the Boston area. I have about $80,000 saved up, and I expect to have $100,000 saved up in the future. I work six months out of the year, and I earn $25,000-30,000, but I do not have a full-time job. I spoke with a lender, and he said they wouldn't give me a mortgage loan on a rental property without a full-time job; he also said I could not consider expected rental income as income when applying for the mortgage. I would have to have two years of rental property history. I am looking for something in the $200,000 to $300,000 range to afford a down payment. I will be graduating in two years as a computer engineering major with a business minor. At that point, I will have had three, 6-month terms of employment at engineering companies. Is it possible to get a loan when I'm in this situation? Or will I have to wait until I have had a full-time job for a few years?
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I applaud you for beginning the process of building a property portfolio while you are in college. Generally speaking, you will not be able to get a mortgage without a steady history of income that is both stable and sufficient to pay the mortgage. With a 50% down payment, it is possible to get an asset-based loan, which will be approved primarily based upon the equity in the home, even without a steady personal income. Based on the numbers you have provided, however, I would not recommend going that route.
Investment real estate requires more cash than just the downpayment
In addition to the down payment, you should add in closing costs, prepaid property tax, and insurance expenses of 10% of the purchase price. You also have to think about how to pay the bills while you find tenants. Since you would require the rental income from the property to pay the mortgage, it would be risky to assume you could have the property fully rented immediately and not have any other expenses, repairs, or improvements. As a result, you should plan to have a pretty hefty 'emergency fund' to deal with problems with the property. In this savings fund, I would recommend:
3-6 months of mortgage payments
12% to 15% of the property value for repairs, maintenance, and other unpleasant surprises
Assuming you purchased the home for $200,000, this would mean you would want approximately $150,000 saved up before buying a property.
There are safer and easier real estate investment alternatives
Overall, I recommend waiting on purchasing a property until you have a bit more cash for other aspects of your life. If you were my client, I would want to make sure you had a healthy personal emergency fund in addition to the funds for the real estate business. My family has been in real estate for decades, and I purchased my first rental property shortly after college. Believe me when I say waiting a couple of years and building up a bigger war chest isn't going to set you back in the long run.