Investor · Minneapolis, MN · Member since 2013 · 59 posts · 11 votes
Suppose I pay $200,000 for a building, put 25% or $50,000 down for a conventional transaction (Fanny/Freddie), then execute a seller carry-back for a $40,000 loan in 2nd position (thus only $10,000-15,000 out of pocket for the purchase including closing costs).
Premise is to use as much OPM as possible
How does this arrangement affect my personal Debt/Income ratio to qualify for future deals?
How would you modify this deal to affect D/I ratio less?
Realtor · Omaha, NE · Member since 2011 · 110 posts · 25 votes
10y
Do you know if the seller is going to report the 2nd loan? If so I would think most banks would just sum up the monthly payments when calculating your debt to income ratio.
Real Estate Broker · Greenville, SC · Member since 2013 · 269 posts · 141 votes
10y
@Justin Hennig you will need to disclose to your lender that the Seller will be carrying a 2nd. The Underwriter will require the terms of the 2nd, and yes that payment will be included in your DTI.
To those who say that the Seller won't report this to the credit bureaus... The 2nd lien will be reflected on the Closing Disclosure so your 1st lien Lender would find out prior to closing. To not disclose this would be mortgage fraud, and I definitely don't recommend that :)
You asked how to structure this to be most beneficial to your DTI for future deals? Simple... the lower the payment, the better your DTI, so if you can get a lower rate or a longer amortization that will be key.