How to get started with high DTI

20 Replies

Hi everyone, I've been trying to figure out how it's possible to get financing for a first investment property when I already have my primary residence and it eats up my available DTI (I bought it before knowing anything about REI). Currently my DTI is about 36% which is fine however now if I want to try and get a second property for investment purposes, I think I wouldn't qualify because the second property would bring me way over the allowable DTI for most lenders. Any advice on this? How do others do it if they already have a primary residence when trying to start out?

@Mark Stark I planned on trying out short term rental for the current property I own, since I’m overseas right now. I haven’t found a second property yet just because I wanted to know my options first. Thank for your help, I’ll start more actively looking now that there may be some options, and pm you.

@Danika Jeanton our bank allows you to offset the housing expense of your subject investment property with its potential rental income to help keep your debt to income

Ratio low. Remember, an investment property is an investment to bring you a return, not a full debt expense like a primary residence, so it’s not fully counted against you. I hope this helps.

@Danika Jeanton , typically a bank wants to see at least two years of experience as a landlord before they give you credit towards your DTI using rental income.

If you want to make room in your DTI there are two solutions- make more money or have less debt. Do you have a car loan? Credit cards? Student loans? Do you have time in your schedule to work more hours or take on a part time job?

I talk to lots of new investors who are having DTI issues and they drive MUCH nicer cars than I do, always makes me wonder what their true goals are!

Best of luck!

To add on... local Credit Unions are awesome if you can find one that will lend to you for an investment Property. Some are memebership only but they are way better than the big banks.

@Corby Goade thanks for the advice. I don’t have any other debt only my primary home and student loans (that’s the killer). Otherwise no credit card debt, car payments or anything. If I use my primary home as a short term rental, would that count as landlord experience?

Options to help improve your borrowing power to get the rental:

- Pay down your mortgage on primary

- Ask a friend or family with good credit and income to co-sign the mortgage agreement

- Invest as a sponsor in a syndicate deal

- Find credit unions or hard money lenders to work with you at higher interest rates than big banks

I would look at doing some debt consolidation if you are able to. Combine multiple payments by refinancing into one loan can really help you DTI as it lessens your payment amounts. I would need more information on payments but that is often very quick and fast way to modify DTI.

@Danika Jeanton

I’d attack the student loan first, and then invest. We paid off my wife’s 50K loan 3 years ago. The feeling of being debt free is priceless.

@Danika Jeanton I also had a high DTI with my primary residence when I started investing.

To put it simply, I found a property I could afford to pay cash for. Of course that’s easier said than done. I found a property no one wanted that required a total gut; rehabbed it with high interest, hard money then refinanced out of it once the house was rented. It was in the neighborhood I grew up in so local knowledge gave me a lot of confidence. I also was fortunate to have a good general contractor. Again, easier said than done.

That may not work for your situation and area but just thought I’d share.