Buying with high debt-to-income ratio

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Buying with high debt-to-income ratio

Obinna Kanu
Member since 2023 · 2 posts · 0 votes

Good day everyone. 

I am in the market to buy my first rental home but due to the mortgage on my personal home, my debt-to-income ratio is relatively high. Is there a workaround for the debt-to-income ratio issue? What can I do to get lenders to approve me for a higher house price value? Credit score is good and there is equity accumulated on the personal home but rather not refinance because of the high mortgage rate.

My apologies if this question has been asked and answered. Thanks,

Obi

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y

@Obinna Kanu

Don't do it. There is a reason there are DTI standards and over leveraging yourself never works out especially in an economy with tightening monetary policy and interest rate risk.

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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Decrease your personal debt.

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  • Andrew FreedBusiness Member
    Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
    3y

    @Obinna Kanu - If you're trying to owner occupy your next property, you can always talk with the lender about having a lease set up in your current residence prior to leaving. If you did that, the lender would take into account the rent from the lease in your debt to income ratio and that would reduce the downside effect of the current mortgage you have on your credit. I've done this a few times, prior to leaving a condo in Boston and moving into a 3 family, I had to obtain a lease at the condo so my DTI made sense to a lender. I hope this helps!

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Obinna Kanu

    Don't do it. There is a reason there are DTI standards and over leveraging yourself never works out especially in an economy with tightening monetary policy and interest rate risk.

    7e investments53 Reviews
    WebsiteView Page
    1Reply
  • Edward Adams
    Investor · Houston, TX · Member since 2020 · 111 posts · 64 votes
    3y
    1. Increase your income: If possible, find ways to increase your income, such as taking on a side job or freelancing. A higher income can help improve your debt-to-income ratio and make you a more attractive borrower to lenders.
    2. Pay down existing debt: By reducing your overall debt, you can lower your debt-to-income ratio. Consider paying off or paying down outstanding debts before applying for a new mortgage. This can include credit card debt, auto loans, or student loans.
    3. Find a co-signer or partner: If you have a trusted friend or family member with a strong financial profile, they may be willing to co-sign the rental property mortgage with you. Their income and credit history can help offset your high debt-to-income ratio and increase your chances of approval.
    4. Explore alternative lenders: Traditional banks and lenders have strict guidelines when it comes to debt-to-income ratios. However, there are alternative lenders, such as private lenders or online mortgage providers, that may have more flexible criteria. These lenders may be more willing to consider your application based on factors beyond just your debt-to-income ratio.
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  • Brayden Hrycko
    Lender · Allentown, PA · Member since 2023 · 207 posts · 38 votes
    3y

    Hello @Obinna Kanu, 

    Have you thought about going DSCR? DSCR is a Debt Service Coverage Ratio loan which means lenders will look at the performance of the property and not your income to qualify. These loans are for investment properties and will require 15-25% down. Also, to qualify you'll need proof of assets for the downpayment/closing costs and a decent credit score. I would be happy to connect if you'd like to learn more.

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  • Reid Chauvin
    Lender · Nashville TN - Licensed in AL AR DC FL GA LA MD TN, TX and VA · Member since 2021 · 583 posts · 338 votes
    3y

    @Obinna Kanu - how do you know your debt-to-income ratio is too high? Do you know if rental income on the prospective investment property is being factored into your debt to income ratio calculation? Some lenders unfortunately do not know all the levers to pull to get within an acceptable DTI. Other alternatives include larger downpayment, increase income on the application, pay down existing debts...more than happy to have a conversation on specifics!

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  • Carlos Valencia
    Lender · 92703 · Member since 2022 · 326 posts · 538 votes
    3y

    Hi Obinna, 

    Best way is to lease your current primary to help offset that mortgage payment with tax and insurance. Then figure out how much room you have to buy your next property. I would suggest to speak to a lender a get pre-approved to actually see where you stand in with your DTI and how much room you have to buy your next investment property. Hope this helps.

    @Albert Bui @Matthew Kwan

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  • Obinna Kanu
    OP
    Member since 2023 · 2 posts · 0 votes
    3y

    Thanks, everyone for your suggestions. I really appreciate it and will be looking into a couple of the options raised.

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