How to get loan when DTI is high
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?
Thanks for your help in advance.
Regards
Rahul
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.
Schedule E: https://www.irs.gov/pub/irs-pdf/f1040se.pdf
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.
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.
Schedule E: https://www.irs.gov/pub/irs-pdf/f1040se.pdf
A primary residence that eats 45% of one's income is lunacy for anyone trying to get ahead.
Dr Tom Stanley, while researching 'The Millionaire Next Door' quickly learned to not look for millionaires in the fancy neighborhoods. They were so busy making payments on houses, cars, country club memberships and private schools, they had no assets.
I understand SF is expensive, but the elephant in the room is your room. Sure you couldn't down size a little to get out of the rat race, Rahul? Nobody gets it both ways.