DTI & Buying an Investment before Primary

Buying & Selling Real Estate

DTI & Buying an Investment before Primary

Andrew BroxtermanPro Member

Member since 2022 · 14 posts · 6 votes

I am looking to buy in Cincinnati with a partner in an LLC. A lender who gave us a pre-approval says with my income level, it is not wise to buy an investment property before a primary residence, as the lender on my future primary home will count only half the rental income and the whole investment mortgage in my DTI calculation.

My monthly income is $6,666, and my only current debt is a car payment of $315/month. The investment property would raise my monthly debt to around $1,550 for a DTI of 23%. With a max DTI of 50% for buying a primary, my max monthly payment on the primary would be $1,833, limiting my options. He also says my PMI and interest rate will be higher on my primary if I'm putting 3-5% down like I plan to.

What are your opinions on this? How do people get to 10, 20, even 30 doors working W-2 jobs like I am? Are there just lenders who will ignore your DTI, or only account for half the mortgage if investing with a partner?

A route I can, but don't prefer to take, is to put half down on the investment with a promissory note with my partner (property fully in his name initially), and transfer the property into our LLC after I buy a primary.

I greatly appreciate any help with this.

-Andrew

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Brian Cauldwell

Lender · Springfield, MO · Member since 2023 · 103 posts · 78 votes

1y

DSCR loans. The lenders we work with do not care about DTI. Credit score, and cash flow for the rental property are the primary factors.

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Brian Cauldwell
Lender · Springfield, MO · Member since 2023 · 103 posts · 78 votes
1y
DSCR loans. The lenders we work with do not care about DTI. Credit score, and cash flow for the rental property are the primary factors.
2 Reply
- Andrew BroxtermanPro Member
  OP
  Member since 2022 · 14 posts · 6 votes
  1y
  @Brian Cauldwell Brian, if I have a DSCR loan on a rental in an LLC, is that going to affect my DTI on a personal mortgage later?
  0 Reply
- Scott WolfPro Member
  Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 956 votes
  1y
  Quote from @Andrew Broxterman:
  
  @Brian Cauldwell Brian, if I have a DSCR loan on a rental in an LLC, is that going to affect my DTI on a personal mortgage later?
  
  This is the important part that was missed. A DSCR loan won't show up on your credit pull as it is held in an LLC.
  0 Reply
- Andrew BroxtermanPro Member
  OP
  Member since 2022 · 14 posts · 6 votes
  1y
  @Scott Wolf Scott, I appreciate your response. I have talked to 6-8 people now and the responses have been 50/50 about whether a DSCR loan on a property in an LLC will affect my DTI for a personal mortgage later. I have heard from a few that the DSCR will still be personally guaranteed by me, and I would have to report it when applying for a personal mortgage. Any additional thoughts? Thank you
  0 Reply
- Andrew BroxtermanPro Member
  OP
  Member since 2022 · 14 posts · 6 votes
  1y
  @Scott Wolf and on top of that, do you know any DSCR lenders that could guarantee it wouldn't show up on my personal credit?
  0 Reply
- Scott WolfPro Member
  Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 956 votes
  1y
  Quote from @Andrew Broxterman:
  
  @Scott Wolf and on top of that, do you know any DSCR lenders that could guarantee it wouldn't show up on my personal credit?
  It won't show up on your credit report, but if held for over a year, it will turn up on your tax returns which can affect your DTI.
  If the property is profitable on paper, it can offset the mortgage payment or even contribute positive income.
  BUT, if the property shows a loss (after depreciation, vacancy, expenses), it could negatively affect your DTI.
  
  Some lenders add back depreciation, but still, a paper loss can reduce borrowing power.
  1 Reply
- Andrew BroxtermanPro Member
  OP
  Member since 2022 · 14 posts · 6 votes
  1y
  @Scott Wolf understood. I think I will need my investment partner to be the guarantor but I still provide half the money down. Promissory note between us until I buy a personal property, then move investment into LLC after
  1 Reply
- Scott WolfPro Member
  Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 956 votes
  1y
  Quote from @Andrew Broxterman:
  
  @Scott Wolf understood. I think I will need my investment partner to be the guarantor but I still provide half the money down. Promissory note between us until I buy a personal property, then move investment into LLC after
  Sounds good. I'm here if you need anything.
  0 Reply
- Andrew BroxtermanPro Member
  OP
  Member since 2022 · 14 posts · 6 votes
  1y
  Quote from @Scott Wolf:
  
  Quote from @Andrew Broxterman:
  
  @Scott Wolf and on top of that, do you know any DSCR lenders that could guarantee it wouldn't show up on my personal credit?
  It won't show up on your credit report, but if held for over a year, it will turn up on your tax returns which can affect your DTI.
  If the property is profitable on paper, it can offset the mortgage payment or even contribute positive income.
  BUT, if the property shows a loss (after depreciation, vacancy, expenses), it could negatively affect your DTI.
  
  Some lenders add back depreciation, but still, a paper loss can reduce borrowing power.
  One more question if you don't mind - if we are not taking any money out of the LLC during the first year, will it show up on my personal tax return?
  0 Reply
- Scott WolfPro Member
  Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 956 votes
  1y
  Quote from @Andrew Broxterman:
  
  Quote from @Scott Wolf:
  
  Quote from @Andrew Broxterman:
  
  @Scott Wolf and on top of that, do you know any DSCR lenders that could guarantee it wouldn't show up on my personal credit?
  It won't show up on your credit report, but if held for over a year, it will turn up on your tax returns which can affect your DTI.
  If the property is profitable on paper, it can offset the mortgage payment or even contribute positive income.
  BUT, if the property shows a loss (after depreciation, vacancy, expenses), it could negatively affect your DTI.
  
  Some lenders add back depreciation, but still, a paper loss can reduce borrowing power.
  One more question if you don't mind - if we are not taking any money out of the LLC during the first year, will it show up on my personal tax return?
  
  That's a question for a tax professional, but my guess would be it would show up on your tax return as a loss if you're not taking any money out.
  1 Reply
- Andrew BroxtermanPro Member
  OP
  Member since 2022 · 14 posts · 6 votes
  1y
  @Scott Wolf understood. Thanks for your help.
  0 Reply
Sam McCormackBusiness Member
Real Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
1y
Quote from @Andrew Broxterman:

I am looking to buy in Cincinnati with a partner in an LLC. A lender who gave us a pre-approval says with my income level, it is not wise to buy an investment property before a primary residence, as the lender on my future primary home will count only half the rental income and the whole investment mortgage in my DTI calculation.
My monthly income is $6,666, and my only current debt is a car payment of $315/month. The investment property would raise my monthly debt to around $1,550 for a DTI of 23%. With a max DTI of 50% for buying a primary, my max monthly payment on the primary would be $1,833, limiting my options. He also says my PMI and interest rate will be higher on my primary if I'm putting 3-5% down like I plan to.
What are your opinions on this? How do people get to 10, 20, even 30 doors working W-2 jobs like I am? Are there just lenders who will ignore your DTI, or only account for half the mortgage if investing with a partner?
A route I can, but don't prefer to take, is to put half down on the investment with a promissory note with my partner (property fully in his name initially), and transfer the property into our LLC after I buy a primary.
I greatly appreciate any help with this.
-Andrew

DSCR, like @Brian Cauldwell said. LLC is in place for it as well so you are in good position for it, I would be surprised if your lender hasn't asked about DSCR yet. I am in Greater Cincinnati as well, if you want to talk more about it then shoot me a message or let me know and I can reach out
[email protected]859-443-4952
Sam McCormack Realtor
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0 Reply
- Andrew BroxtermanPro Member
  OP
  Member since 2022 · 14 posts · 6 votes
  1y
  @Sam McCormack Sam, I would love to connect.
  0 Reply

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