Is there standard formula to figure out how much $$ you qualify for? No debt. Exc crdit, 40K militar

I have a 1st time home buyer. 3% to put down. Found a 4 family for 350K but I'm not sure he can get a loan for that amount. Current rents are 1k each unit and he make 40K a year. In the Military
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November 27 2011 - Dracut
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He may qualify easier for a single family. I believe there are special programs for military as well. You should talk to a mortgage broker who does military and VA loans.
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November 28 2011
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Another "rule of thumb"?

Always consider why someone else is selling!

If it is such a good investment with good cash flow, why would someone want to dump it and cash out?  Falling market values?  Better investment somewhere else?

If $4k per month revenue (assuming tenants actually pay and pay on time), and assuming $2300 monthly mortgage payment (at 7-1/8% 30 yr fixed), that should leave $1700 per month for taxes, insurance, maintenance, upkeep, utilities, assessments, HOA, management, collections...
So, does it need a new roof or other major differed maintenance items or capital outlay?
Or do you have problem tenants that aren't paying?
Or is there substantial vandalism in the area?
Or are the tenants creating public nuisances that the landlord is liable for, such as illegal drug sales?

Unless you know why someone else is selling, you have not done your homework yet.
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November 28 2011
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Well, even if one was going to provide you a simple rule-of-thumb formula for determining a starting point... you left out at least 4 major variables:
1) Middle FICO score
2) Present debt to income ratio
3) Stability of present deployment
4) length of time existing tenants have been there.

And anyone purchasing income property also needs to look at expected maintenance costs, utilities, whether they can do their own management & repairs or if they have to hire out, property tax, expected vacancies...  Not to mention, investment properties usually require 20% or more down to get a loan funded, and usually at higher interest rates.

And of course the interest rates does have an impact on what one can afford.

Any Realtor® that does not already understand these things is not qualified to advise or recommend anything, even if it is a son.

The son makes $40k per year and has only saved $10.5k for a down payment?  What is wrong with this picture?  How would he put a new roof on the building(s) when needed?

A $340k loan at 4% annual 30 yr fixed interest is only $1623 per month.  But that is $19.5k per year, or a debt to income ratio of 48.7%, which is too high, even if no other debt.  (30% debt to income is very manageable; 40% debt to income ratio is stretching it and likely wouldn't qualify for most underwriters).

(If you don't already have a financial calculator, or know how to use it, you should probably get one, or learn how to do it with Excel, or take advantage of the calculators on sites like this).

Don't forget, you can always do an anonymous loan quote request on this website, but if you cannot afford the loan, you likely won't get any quotes.
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November 28 2011
Dear Professor. I am certain I am not wasting my time with my son :-) It used to be very simple to ask others in the industry their Professional Humble opinions to give Buyers  some ideas regarding  loans. I was looking for a humble opinion guideline. But thanks again. I do have many contacts in the industry since I've been a realtor for quite some time, but thought I'd go this route before bogging down an already busy banker :-) with a bunch of questions from an eager man wanting to begin his future.

~~Well, you will never find a formula for a multi-unit property because it's more complicated than that. Calculating a 2 unit is different from a 3 and 4 unit in what is required. If he's not ready to sit with a lender, you are both wasting your time~~
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November 28 2011
"I really just wanted to know if there was a simple formula- Years ago they used to say- What you earn annually, multiply by 3 to get a rough idea for a SF. Just thought there was something like that for multi's. Not ready to sit down with a Lender. He wants to look, and I don't want to have him look at things he will never afford."


Well, you will never find a formula for a multi-unit property because it's more complicated than that. Calculating a 2 unit is different from a 3 and 4 unit in what is required. If he's not ready to sit with a lender, you are both wasting your time.
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November 28 2011
Thanks for the responses. A very ambitious yound soldier ready to become a landlord as well as live there. Following his parents footsteps of investing early. I really just wanted to know if there was a simple formula- Years ago they used to say- What you earn annually, multiply by 3 to get a rough idea for a SF. Just thought there was something like that for multi's. Not ready to sit down with a Lender. He wants to look, and I don't want to have him look at things he will never afford. Stationed in NC, Going to live in MA. so Trying tosimplify.
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November 28 2011
The formula that comes to my mind, in this example, is that first time home-buyer rarely equals three unit landlord.
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November 28 2011
Instead of searching for a formula, I have a novel idea...



Try calling one!
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November 28 2011
Can you enlist a local bank to see how they'd handle this?
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November 28 2011
Have buyer get prequalified by local credit union, bank or online lender prior to writing the offer and spending money on inspections.  Many mortgage calculators online, but VA loans are usually a good military plan. 
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November 28 2011
 
Related Questions
Is there standard formula to figure out how much $$ you qualify for? No debt. Exc crdit, 40K militar
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Latest answer by Pasadenan
November 28 2011 | 10 answers
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