Debt to Income Calculation Question

[Aaron Ingram]

BP friends, 

Forgive my ignorance on bank financing and how financial institutions calculate debt to income but I am seeking a few answers. I am in the process of getting Pre-Approval for the Fannie Mae Homestyle Renovation Loan (a great offering by the way - call your local credit union) and my Mortgage POC at my local bank is informing me that since my tax returns show a net loss on my rentals due to depreciation that this will be calculated against me for debt to income. Now in reality my rentals cash flow, but as we know taxes are a different animal. Additionally I have about 35% equity in a rental I purchased last year and am working with Pentagon Federal (great bank for military REI HELOCs) to open up a HELOC which would capture 15% (PenFed allows up to 80% LTV HELOCs on investment properties!) of this equity which I would then use to help finance my next purchase. I have no other debts but I am a military officer who doesn't make huge money so i'm concerned even if this DTI policy doesn't affect me for this purchase it will for my next one. Any guidance/thoughts or clarification on banks using rental property depreciation in the DTI calculation? Any way my lender is wrong and they should simply be looking at my profit and loss separate from my tax return claimed depreciation? Thanks for any feedback!

[Basit Siddiqi]

@Aaron Ingram

Depreciation is a non-cash expense that is only figured for tax purposes.
They should be adding it back for DTI purposes.