Fremont, CA · Member since 2015 · 289 posts · 63 votes
HI Guys,
I live in SF bay area where house prices are really high so I have a bunch of mortgage debt on my credit report. My DTI come around 60%. my primary home my self and my wife are co applicant.
Now I am in the market for investment property(Buy and hold) but the problem is I can not get qualify for the loan even for the good cash flow property. I know there are ways like partnership and hard money but wanted to see if there is any way to do it by my self by putting more down or slightly higher interest rates?
I'd not worry about 10 loan limit as Chris pointed out. Find out what you can buy this year with joint income.@Chris Mason correct me, but isn't it true that positive cash flow rentals go off your DTI after 2y of demonstrated positive cash flow (by sch E) . So one slow path will be to buy a rental every few years, accumulate cash in between years.
You could also look at investing with some local syndicators ... or explore syndication and go after commercial loans.
If the property is too new to appear on schedule e, we go off of [ rent * 75% - PITI ] to determine cash flow. If it's positive, wahoo income. If it's negative, debt obligation.
Once it appears on schedule e, we default to going off of that and your actual PITI, without hitting you with anything double, unless there's a good and documented reason not to.
For example if you did a bunch of reno work and rather than putting it in line 14 lumped together you put in line 19 with a "see statement 1" and then statement 1 has itemized reno costs that match invoices you can share with me dollar for dollar and line by line (force your CPA to do this, she or he will not want to... and obviously keep your invoices that your contractors provide!), and as a result rent went way the hell up, we will look at the current lease and use [ rent * 75% - PITI ] instead of looking at the (typically) pitiful number on line 3 of schedule e.
We also look at Fair Rental Days in box 2 of schedule e, so make that accurate.... don't buy a house in November and then put 365 fair rental days when it should be like 60. You don't want me dividing two months of rent in box 3 by 12 months, you want me dividing it by 2 months.
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
10y
If you already own a bunch of properties, that are cash flow positive, but your DTI is wrecked, I'm going to guess (I could be wrong!) that means that the solution moving forward is to start being honest with the IRS about your gross rental income when you file your taxes.
The [ rent * 75% - PITI ] calculation that everyone knows about is not used once you've owned real estate long enough for it to appear on your Schedule E.
And, if applicable, stop writing off meals and entertainment.
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
10y
Interesting. Two years ago, guidelines weren't that far off where they are today.
Did someone get a pay cut, or are you being too nice to your tenants (which is also a pay cut)? Or did you go crazy with some financed car purchase/lease?
Investor · San Francisco, CA · Member since 2016 · 314 posts · 153 votes
10y
Could be rent controlled properties that no one has moved out of. (of course, that prompts the question of how he was able to get loans in the first place -- my guess is an income cut)
Fremont, CA · Member since 2015 · 289 posts · 63 votes
10y
Thanks for your response as I said in my previous comments. My primary home that I own with my wife is eating up mostly DTI. I am trying to qualify by my self for rentals
Could be rent controlled properties that no one has moved out of.
That's theoretically possible, but then the "lesser of" [ appraised market rents or current actual leases ] logic would have applied, and his DTI would have been 60% two years ago as well, which in turn would not have allowed the mortgage to go through.
Thanks for your response as I said in my previous comments. My primary home that I own with my wife is eating up mostly DTI. I am trying to qualify by my self for rentals
Got it. So if I understand you correctly: your cumulative DTI is fine, but your sole DTI without including your wife's income but hitting you with the full debt obligation of the primary residence (that in reality is a joint obligation) is wrecked?
Fremont, CA · Member since 2015 · 289 posts · 63 votes
10y
here is the hypothetical scenario
Two people are taking home 140k combined take a loan monthly payment up to 5k bank will finance easily but after this debt getting rentals property for either one is hard
Thanks for your response as I said in my previous comments. My primary home that I own with my wife is eating up mostly DTI. I am trying to qualify by my self for rentals
Got it. So if I understand you correctly: your cumulative DTI is fine, but your sole DTI without including your wife's income but hitting you with the full debt obligation of the primary residence (that in reality is a joint obligation) is wrecked?
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
10y
Why don't we want to put the spouse on the proposed/new loan?
I will share something with you at this point: The happiest couple I've ever done a mortgage for.
I've only seen this once. Literally, this is the only time in my entire life/career that I've encountered this: two identical credit reports. They commingle all income, all debts, everything.
They literally have the exact same FICO score with all three credit reporting agencies!
Fremont, CA · Member since 2015 · 289 posts · 63 votes
10y
@Chris Mason thanks Man I am concentrating on the low $$ properties now so just concerned about 10 loan limit. I thought that 10 loan limit calculated on individual basis.
Residential Real Estate Agent · Grand Rapids, MI · Member since 2013 · 803 posts · 689 votes
10y
Look into downsizing you primary residence. It sounds like your primary is a burden financially anyways if it is 45% of your DTI. Or refi the primary into one of your names leaving the other with no debt and able to hold more mortgages. That is what we do, she has the primary residence and I hold all the rental properties under my income. The other option is to increase your income somehow.
@Chris Mason thanks Man I am concentrating on the low $$ properties now so just concerned about 10 loan limit. I thought that 10 loan limit calculated on individual basis.
It is and that is true, but if worrying about a problem that may exist (or may not, guidelines change) eight years from now is screwing with your ability to put a deal together and be successful today, I'd say solve today's problems today, and worry about the 8 years from now problem... eh, maybe 5 years from now, when you look at refinancing things to start hacking the loan limit.
Look into downsizing you primary residence. It sounds like your primary is a burden financially anyways if it is 45% of your DTI. Or refi the primary into one of your names leaving the other with no debt and able to hold more mortgages. That is what we do, she has the primary residence and I hold all the rental properties under my income. The other option is to increase your income somehow.
Investor · Houston, TX · Member since 2015 · 176 posts · 121 votes
10y
@Rahul Bhatt I'm just going to through this idea out there....
Maybe you should sell your primary and rent. Then buy investments out of the area.
You could rent a house like yours for 1/4 if what you are paying in PITI.
If you do it right, you could own investments that pay for themselves and kick out enough cash flow to pay your rent. But you would not be investing in California.
@Rahul Bhatt I'm just going to through this idea out there....
Maybe you should sell your primary and rent. Then buy investments out of the area.
You could rent a house like yours for 1/4 if what you are paying in PITI.
If you do it right, you could own investments that pay for themselves and kick out enough cash flow to pay your rent. But you would not be investing in California.
Thanks but it is not like 1/4th but I agree with 1/2. But than taxes benefits in taxes. I want to still pay for my house from the rents. I tried to rent a good amount of time it is money go to drain
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
10y
"How to get loan when DTI is high?"
Lower your DTI
"How to lower your DTI?"
Lower your debt (not likely, since you are trying to take on more debt) or
Raise your income. Either by putting your spouse on the mortgage application, raising rents, or generating more W-2 income.
If your DTI is currently 60% and you are a high-income earner in California, where your tax burden likely approaches 40%, you might have some major triage to be doing before you even think about qualifying for more debt. Just saying.
Investor · Houston, TX · Member since 2015 · 176 posts · 121 votes
10y
@Rahul Bhatt Oops your right. I had not realized rents for SFR's had gone up so much in the Bay area. Guess that is why everyone is screaming about the need for rent control.
San Mateo 3/2 selling for $1.6M (roughly $8400/mo PITI) would rent for roughly $4200/mo.
But that is still roughly $4K/mo you could put into investments elsewhere.
This should solve your DTI issue, but may, or may not, be a better investment in the end than just sticking with your primary. But it will give you cash and excess income to invest.
@Chris Mason thanks Man I am concentrating on the low $$ properties now so just concerned about 10 loan limit. I thought that 10 loan limit calculated on individual basis.
Hi Rahul,
Take a look at commercial financing for residential places. They don't care about DTI, 10 loan limits, or other such nonsense. They care about cash flow. It's difficult to find a place that will loan under those circumstances, but once you do, it makes a WORLD of difference.
Investor · Fremont, CA · Member since 2012 · 64 posts · 45 votes
10y
I'd not worry about 10 loan limit as Chris pointed out. Find out what you can buy this year with joint income. @Chris Mason correct me, but isn't it true that positive cash flow rentals go off your DTI after 2y of demonstrated positive cash flow (by sch E) . So one slow path will be to buy a rental every few years, accumulate cash in between years.
You could also look at investing with some local syndicators ... or explore syndication and go after commercial loans.
"How to get loan when DTI is high?"
Lower your DTI
"How to lower your DTI?"
Lower your debt (not likely, since you are trying to take on more debt) or
Raise your income. Either by putting your spouse on the mortgage application, raising rents, or generating more W-2 income.
If your DTI is currently 60% and you are a high-income earner in California, where your tax burden likely approaches 40%, you might have some major triage to be doing before you even think about qualifying for more debt. Just saying.
Fremont, CA · Member since 2015 · 289 posts · 63 votes
10y
I have gone through that cycle. I just upgraded my home and kept previous one as rental like a year back.for primary I still remove principal from payment and try to see it makes sense or not to own. In my calculations it still does.a appreciate your help.
@Rahul Bhatt Oops your right. I had not realized rents for SFR's had gone up so much in the Bay area. Guess that is why everyone is screaming about the need for rent control.
San Mateo 3/2 selling for $1.6M (roughly $8400/mo PITI) would rent for roughly $4200/mo.
But that is still roughly $4K/mo you could put into investments elsewhere.
This should solve your DTI issue, but may, or may not, be a better investment in the end than just sticking with your primary. But it will give you cash and excess income to invest.
@Chris Mason thanks Man I am concentrating on the low $$ properties now so just concerned about 10 loan limit. I thought that 10 loan limit calculated on individual basis.
Hi Rahul,
Take a look at commercial financing for residential places. They don't care about DTI, 10 loan limits, or other such nonsense. They care about cash flow. It's difficult to find a place that will loan under those circumstances, but once you do, it makes a WORLD of difference.