DTI Calculations PLEASE HELP

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DTI Calculations PLEASE HELP

Omar Jarrah
Member since 2020 · 3 posts · 0 votes

I am having problems qualifying for mortgages and HELOCS. Everyone says my DTI is too high. I currently carry about 11k in mortgages and they are all covered with rents plus cash flow of about15%(this includes my primary residence, thanks house hacking), because of things all my properties have at least 40%+ equity. I have a great w2 job. When I calculate my DTI I am showing roughly 2 to 3% that is canceling out all my mortgages with rents and just using my w2. However, if I calculate the total rent plus w2 minus total mortgages I get a DTI of roughly 53%. How is DTI calculated when you have multiple properties how can I get access to my equity with affordable interest rates? How do BRRR when I cant even get more than 4 mortgages? I had the same issue buying my last property was hard to find anyone to refinance it into a mortgage. Yes, I claim all my rents and income on tax forms. Please help

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Alex Fenske
Real Estate Agent · Mokena, IL · Member since 2011 · 90 posts · 63 votes
3y

I believe they (conforming loan underwriting guidelines) use 75% of gross rents to offset mortgage payments on rentals. Based on that, if you only have a 15% spread then your rentals are still dragging you down a bit.

I've found it much easier to work with a local commercial lender who can use more common sense in loan decisions since they'll be holding the loan instead of being forced to package it into the conforming loan guidelines. The rates are generally higher than on a conforming loan (although that's not the case at the moment, which is extremely odd), and you'll likely always have a shorter amortization and a balloon of maybe 5yrs, but it beats not getting a loan.

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  • Alex Fenske
    Real Estate Agent · Mokena, IL · Member since 2011 · 90 posts · 63 votes
    3y

    I believe they (conforming loan underwriting guidelines) use 75% of gross rents to offset mortgage payments on rentals. Based on that, if you only have a 15% spread then your rentals are still dragging you down a bit.

    I've found it much easier to work with a local commercial lender who can use more common sense in loan decisions since they'll be holding the loan instead of being forced to package it into the conforming loan guidelines. The rates are generally higher than on a conforming loan (although that's not the case at the moment, which is extremely odd), and you'll likely always have a shorter amortization and a balloon of maybe 5yrs, but it beats not getting a loan.

    1Reply
  • Omar Jarrah
    OP
    Member since 2020 · 3 posts · 0 votes
    3y

    Thank you Alex

    It was my understanding that the 75% was only when qualifying for the mortgage. Ie you have a place that you get 1000 a month rent and the mortgage is 750 then it would null out basically. 

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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @Omar Jarrah:

    I am having problems qualifying for mortgages and HELOCS. Everyone says my DTI is too high. I currently carry about 11k in mortgages and they are all covered with rents plus cash flow of about15%(this includes my primary residence, thanks house hacking), because of things all my properties have at least 40%+ equity. I have a great w2 job. When I calculate my DTI I am showing roughly 2 to 3% that is canceling out all my mortgages with rents and just using my w2. However, if I calculate the total rent plus w2 minus total mortgages I get a DTI of roughly 53%. How is DTI calculated when you have multiple properties how can I get access to my equity with affordable interest rates? How do BRRR when I cant even get more than 4 mortgages? I had the same issue buying my last property was hard to find anyone to refinance it into a mortgage. Yes, I claim all my rents and income on tax forms. Please help


     Hey Omar, 

    A lot of investors run into this issue at a certain point in their career. When your loan officer is calculating your rental income, are they factoring in unordinary expenses? Sometimes that helps. 

    Also, how is your loan officer calculating your income? Often times they may over look items on your tax returns for rental properties. 

    [email protected]818-269-7983
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  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Omar Jarrah:

    I am having problems qualifying for mortgages and HELOCS. Everyone says my DTI is too high. I currently carry about 11k in mortgages and they are all covered with rents plus cash flow of about15%(this includes my primary residence, thanks house hacking), because of things all my properties have at least 40%+ equity. I have a great w2 job. When I calculate my DTI I am showing roughly 2 to 3% that is canceling out all my mortgages with rents and just using my w2. However, if I calculate the total rent plus w2 minus total mortgages I get a DTI of roughly 53%. How is DTI calculated when you have multiple properties how can I get access to my equity with affordable interest rates? How do BRRR when I cant even get more than 4 mortgages? I had the same issue buying my last property was hard to find anyone to refinance it into a mortgage. Yes, I claim all my rents and income on tax forms. Please help

     @Omar Jarrah    For a conventional loan, the calculation is pulled directly off this worksheet:  https://content.enactmi.com/do...

    You can do the math just like an underwriter would do. You would need your 2021 tax returns to complete this. 

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  • Paul ZofsakPro Member
    Investor · Cypress, TX · Member since 2013 · 118 posts · 15 votes
    3y

    I ran into the same issue when I applied for a HELOC. I had to explain to the underwriter that they couldn't take into consideration my total debt from my investments as they did have positive cash flow; even at 75% of rents. Once the looked at my investment debt service on a monthly basis, offset by rental income, instead of as a whole, like my primary residence, I had a greatly reduced DTIR. I was also then approved for much more than I was originally seeking. I don't think I should have had to explain to the underwriter how to calculate this properly, but I guess not everyone has come across such scenarios. Give it a shot, never hurts to ask.

    1Reply
  • Simmy AhluwaliaPro Member
    Lender · Atlanta, GA · Member since 2015 · 1k+ posts · 200 votes
    3y

    Unfortunately, this is commonplace when going Full Doc for investor loans. DSCR loans DO NOT look at your DTI, nor any other personal paperwork. It's heavily "asset-based lending"/cashflow. I have investors who own 50+ rental properties with a personal 30% DTI.

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  • Omar Jarrah
    OP
    Member since 2020 · 3 posts · 0 votes
    3y
    Quote from @Jay Hurst:
    Quote from @Omar Jarrah:

    I am having problems qualifying for mortgages and HELOCS. Everyone says my DTI is too high. I currently carry about 11k in mortgages and they are all covered with rents plus cash flow of about15%(this includes my primary residence, thanks house hacking), because of things all my properties have at least 40%+ equity. I have a great w2 job. When I calculate my DTI I am showing roughly 2 to 3% that is canceling out all my mortgages with rents and just using my w2. However, if I calculate the total rent plus w2 minus total mortgages I get a DTI of roughly 53%. How is DTI calculated when you have multiple properties how can I get access to my equity with affordable interest rates? How do BRRR when I cant even get more than 4 mortgages? I had the same issue buying my last property was hard to find anyone to refinance it into a mortgage. Yes, I claim all my rents and income on tax forms. Please help

     @Omar Jarrah    For a conventional loan, the calculation is pulled directly off this worksheet:  https://content.enactmi.com/do...

    You can do the math just like an underwriter would do. You would need your 2021 tax returns to complete this. 


     Thanks for this. I feel like it is a blind area where they just go with you don't qualify if they don't understand it. I appreciate the information.

    thanks

    0Reply
  • Ash Hegde
    Lender · Fort Lauderdale, FL (Lending in FL CT GA MI PA) · Member since 2022 · 470 posts · 349 votes
    3y

    @Omar Jarrah since you've been reporting it on tax returns, they should be able to use actual rents and expenses reported rather than 75% of an estimate. They could be doing this incorrectly (there are tax deductible items that they can add back and make your net profits higher), or as you mentioned, make an assumption from lack of understanding. 

    1Reply
  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Omar Jarrah:
    Quote from @Jay Hurst:
    Quote from @Omar Jarrah:

    I am having problems qualifying for mortgages and HELOCS. Everyone says my DTI is too high. I currently carry about 11k in mortgages and they are all covered with rents plus cash flow of about15%(this includes my primary residence, thanks house hacking), because of things all my properties have at least 40%+ equity. I have a great w2 job. When I calculate my DTI I am showing roughly 2 to 3% that is canceling out all my mortgages with rents and just using my w2. However, if I calculate the total rent plus w2 minus total mortgages I get a DTI of roughly 53%. How is DTI calculated when you have multiple properties how can I get access to my equity with affordable interest rates? How do BRRR when I cant even get more than 4 mortgages? I had the same issue buying my last property was hard to find anyone to refinance it into a mortgage. Yes, I claim all my rents and income on tax forms. Please help

     @Omar Jarrah    For a conventional loan, the calculation is pulled directly off this worksheet:  https://content.enactmi.com/do...

    You can do the math just like an underwriter would do. You would need your 2021 tax returns to complete this. 


     Thanks for this. I feel like it is a blind area where they just go with you don't qualify if they don't understand it. I appreciate the information.

    thanks

     @Omar Jarrah  This is 100% correct. Your LO needs to versed in how to make deals work for investors. it is NOT hard but there are a lot of LO's out there who do 2-3 deals in a good month so they just do not see deals from investors all that often. 

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  • Devin PetersonBusiness Member
    Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
    3y

    Hey omar, sent you a PM!!!

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