Help! Lender says DTI is too high.

19 Replies

Frustrated. My situation is a little complicated but i'll try to provide as much detailed information as possible. I'm looking to purchase a off the market duplex for $400k. Each unit can potentially rent for $1,600-$1,700 a month. The down payment will come from my husbands inheritance as a gift but I've been informed by my lender that gift funds can't be used on investment property. I understand that but one of my many questions is will it still count as a gift if my husband has the inherited funds wired to our joint account? My husband is not a option to go on the loan with me. I have a primary home that will turn into a rental property Jan 1st 2018. The monthly PITI for the soon to be rental $1435. My pretax take home without using the future rent in January is $4,300. I currently have a car note of $600 but it will be paid off Dec 15th 2018. The only monthly obligations i'll have after Dec 15th is my primary home that's turning into a rental property. Here's the part I don't understand. If I'm able to use 75% of the rent towards my income and we plan on putting down $150-$200k on the duplex, how could my DTI still be too high to qualify for the duplex?

Here's some numbers: 

Take home pretax income is $4,300.

Rent income from 1st rental $1,650 , (PITI) $1,435 

Using the lower potential rent income for the duplex will be $2,400,  If we put down $200k on the duplex the monthly PITI will be approx $1488.

Please let me know if I'm calculating properly but going off these numbers my DTI looks like it would be below 37%.

Here are the questions i have 

Do i have too many contingencies that's causing the lender to say that my DTI will be too high? Meaning that all the rents will have to applied in order to qualify.

How soon can the rents be applied?

If we wire the funds from my husband into our joint account, will the funds still have to season? 

Please let me know if I'm leaving something out. 

Hello JaNae,

There should not be an issue here. Depending on the exact loan and structure, there are many ways to use the future rental income to qualify/offset property charges. The good news is, there are options that will allow for unseasoned funds to be used. 

How soon will you be in contract for this purchase? 

Don't worry, you can make this work! 

-Chris Caldwell

I recently purchased a SFH as my primary residence, moved out of my old house, and turned it into a rental. I encountered DTI problems too because to calculate my rental income into the DTI, I had to have collected that rental income for a minimum of two years prior to obtaining the new loan (this is probably the case for you).

We got around this by writing a contingency that stated that I had to have a signed lease and security deposit in hand for the house I was living in before securing the loan for the new house. This freaked me out at first because I was renting out the house I was living in before getting another place to live but the more I thought about it the more I realized that this was a desirable situation for me, as well as the lender.

I am single, so I haven't had any dealings with spousal financial law but I think that even if he wires the money into your joint account, there will be some strings attached with gifting. You may also want to look at how much can be given without it being considered a gift in the eyes of the lender.

Have you asked any of these questions of your lender? I have dealt with two separate, big bank lenders and they were both eager to give me the loan, so they answered whatever questions I had and worked with me on them. I wish i could give you more definitive answers but I hope this helps.

I recently purchased a SFH as my primary residence, moved out of my old house, and turned it into a rental. I encountered DTI problems too because to calculate my rental income into the DTI, I had to have collected that rental income for a minimum of two years prior to obtaining the new loan (this is probably the case for you).

We got around this by writing a contingency that stated that I had to have a signed lease and security deposit in hand for the house I was living in before securing the loan for the new house. This freaked me out at first because I was renting out the house I was living in before getting another place to live but the more I thought about it the more I realized that this was a desirable situation for me, as well as the lender.

I am single, so I haven't had any dealings with spousal financial law but I think that even if he wires the money into your joint account, there will be some strings attached with gifting. You may also want to look at how much can be given without it being considered a gift in the eyes of the lender.

Have you asked any of these questions of your lender? I have dealt with two separate, big bank lenders and they were both eager to give me the loan, so they answered whatever questions I had and worked with me on them. I wish i could give you more definitive answers but I hope this helps.

Thanks for your input @Marshall Easlick . I have a tenant with a signed lease and from my understanding is rents are applied immediately. Which is why I’m not understanding what’s the issue with my lender. I’ve asked him so many questions that I’m frustrated at this point. He continues to find ways why I should wait instead of how to make it happen. Ive been provided with contact info for two other lenders that i’ll call tomorrow. 

Ok, good. He obviously isn't interested in earning commissions. When I was typing my last response I saw an ad on the side of the web page for Finance of America - Commercial. I haven't looked into it in depth but it looks interesting, may be worth a look for you.

https://www.foacommercial.com/?landing=success&fhid=0417-bigger-pockets#gf_25

@JaNae Anderson , a couple of points glared out to me. #1: If your new accommodation is one side of the duplex, then both sides won't be getting $1600-1700/m, right?

#2. If you're adamant that your husband cannot be on title, then I suggest that him putting money into your joint account might not help you. Start a non-joint account for that deposit? Even then, I've heard that it will need to "season" for three months. All the best...

My new accommodations will not be in the duplex. Both units will be available to rent @Brent Coombs . Thanks for your input.

Thanks for your feedback @Christopher Caldwell . As this property is a off market opportunity. I’m looking to go into contract as soon as possible to seal the deal. Can you give me a little more insight on other ways to use unseasoned funds please? 

Hard/Private money probably best way around seasoning but you're going to pay w/ pts/interest rate. What about owner finance then refi out w/ conventional loan after funds have seasoned etc.

Tried that option @Matt K. but unfortunately they didn’t want to go that route. 

Originally posted by @JaNae Anderson :

My new accommodations will not be in the duplex. Both units will be available to rent @Brent Coombs. Thanks for your input.

In that case, have you forgotten to mention how much your accommodation will cost monthly? 

Originally posted by @JaNae Anderson :

I won’t have a new monthly rent or mortgage obligation, once I move out of my primary @Brent Coombs

 Maybe that's what Lenders are having a hard time believing?

ie. Is your "free" rent going to be a (disallowed) "gift" too? [But, kudos]...

Wow...... ok. Maybe that’s what they’re thinking. If I have to show something to prove it I can but in the interim I’ll continue my hunt on finding a lender that can make it happen @Brent Coombs

If you're putting about 50% down would a portfolio loan work?

I’m not sure if i’d Qualify for a portfolio since I would technically only have one rental as of Jan 1st and trying to acquire the second within around the same time. Would you happen to know if there’s a minimum number of properties you must own to qualify for portfolio lending? 

@JaNae Anderson I don't see where the DTI would be an issue based on these numbers. You said you can document that you won't have a housing expense for your new residence. Keep in mind even if you're living in a paid off house, taxes and insurance will still have to be counted.

If you have more than 10 payments left on the car loan, that will still be included, although that also doesn't seem to be the issue.

It seems like the issue of the gift funds would be the bigger obstacle.  If the funds are coming from your husband's separate account, and 200k shows up in your joint account, it will have to be sourced.  Since it sounds like the funds are not yet in the joint account and you're planning to buy this home ASAP, there doesn't seem to be time to season the funds in your joint account to avoid this.

If this isn't feasible with a conventional loan because the funds are considered a gift, there are other options especially with a 50% down payment, although at a higher rate.  A portfolio loan isn't referring to the size of your portfolio.  :)  You're probably thinking of a blanket loan that covers more than one property.  A portfolio loan just means that the lender keeps the loan in their portfolio, so you don't need a minimum number of properties to qualify.

@JaNae Anderson Welcome to BP and Happy Thanksgiving! It sounds like you’ve got a few obstacles to overcome to land this investment opportunity- but I do see a way to make it happen.

Aside from the gift funds not being allowed to fund the deal, the biggest issue I see is the timing of when these ‘future’ rents can count towards your income- ultimately effecting the DTI ratios.

As someone mentioned in this thread, most lenders want to see a lease in place, or seasoned tenant before including that revenue.. and since the lease won’t take place until the turn of the year, your current mortgage is most likely included in DTI along with the purchase of the new duplex.

A bridge loan/hard money loan would help you secure the property if it’s something you really want. Yea the costs are higher, but you can refinance after the lenders ‘seasoning period’ hits and you can use the gift funds to make the purchase- plus most are interest only payments, making it easier to handle cashflow situations during the gap period.

Send me a message if you have questions or need reputable lenders in this space!

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