Real Estate Investor · Tacoma, WA · Member since 2010 · 46 posts · 10 votes
Ok, so I have 4 properties to my name. I think I am figuring my DTI correctly, but am not 100% confident. My wife and I just moved to a new area and are planning to purchase a new house in the area, have one already under contract. My mortgage loan officer said we are well in the clear for a new loan, but I am not so sure. Could you help me with the numbers? I have read in a few places that the DTI Ratios are just guidelines, if that is so, what is the absolute max they will let you go?
Job Income 6911 bt
House 1 -262
House 2 94
Duplex 840
House 3 397
The House numbers are =(Rent * .75) – Mortgage
My total mortgage numbers are 4007 a month, Total income 7980
So this means to me, I am already at 49%~50% DTI Ratio?
Will most banks let me go further over this number if my wife and I have excellent credit?
If so, what is the max you have heard of? Thank you so much for your replies; I haven’t been able to find this information anywhere.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
14y
Your gross income is your personal gross plus 75% rents-PITI.
Take that number times 28% for a conservative, conforming coventional loan for PITI (principal, interest, taxes, insurance).
28% of 7980 is 2234. The important number is 36% for your personal debt and PITI for home only. If your personal debt is low that is a plus and can go a little higher PITI.
If you have a mortgage amt and taxes and est. insurance, can work backwards.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
14y
My understanding from a most recent conversation with a loan officer is Rent x .75-PITI.
Are you subtracting rental mortgages twice?
Take 75% of rents-PITI and add to your personal gross income.
If you want a conventional conforming loan (best interest etc) use 28% of your gross income for PITI on your new home.
There are more aggressive formulas but if want 3.875% 30yr then the above will get you there, assuming good credit and high quality property, and not exceeding 36% gross total personal debt including PITI for home.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
14y
Your gross income is your personal gross plus 75% rents-PITI.
Take that number times 28% for a conservative, conforming coventional loan for PITI (principal, interest, taxes, insurance).
28% of 7980 is 2234. The important number is 36% for your personal debt and PITI for home only. If your personal debt is low that is a plus and can go a little higher PITI.
If you have a mortgage amt and taxes and est. insurance, can work backwards.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14y
If you're had these properties for a while, the lender may want to see your tax returns and will use the actuals rather than the 75% estimate.
The explanation from another recent thread was that if your actual or estimated rental income is positive, it adds to your income. If its negative, it adds to your debt payment. So, if you have $10,000 a month in income, not counting the rentals, and $3000 a month in debt payments, again not counting the rentals, you have a DTI of 30%. If you then have positive income of $1000 from the rentals, your DTI is $3000/$11,000 = 27%. If you have negative income (loss) from the rentals of $1000, your DTI is $4000/$10,000 = 40%.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14y
Job Income 6911 bt
House 1 -262
House 2 94
Duplex 840
House 3 397
The House numbers are =(Rent * .75) - Mortgage
My total mortgage numbers are 4007 a month, Total income 7980
So this means to me, I am already at 49%~50% DTI Ratio?
I can't make sense of these numbers. If you use the algorithm I outlines, you income is 6911+94+840+397 = 8242. Your debt is the one negative property, 262. If those are correct, DTI is just over 3%. Not sure how you get to 50%.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14y
Your DTI is 0 / 8151 = 0%. You have no debt payment at all except the mortgages on your rentals. The total rent on your rentals, times 75% is a positive number. Therefore you effectively have no debt at all.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
14y
Nicholas,
Just another couple thoughts. Know that you have a house under contract for your home so there are already numbers in place for that.
I notice that you want to buy more RE. If that is the case then using cash flow to pay home mortgage debt is draining your business assets. If you could afford to not do that your business would be much better off.
If you use job income only, which is a more conservative way to go, you can build wealth through cash flow, and buy a little less house. Buying more home isn't always the best investment. More expensive house brings other higher expenses.
Using job income of $6911 gives you $1935 per mo PITI at 28%. We can work backwards and make some assumptions to come up with a purchase price.
Estimate $350 per mo for taxes and insurance.
$1935-350=$1585 for your mortgage.
$330,000 at 4% for 30 yrs is $1575.47 per mo PI
This gives you a purchase price of $412,500 w 20% down.
That is $82,500 cash down plus closing costs.
This assumes:
1. Taxes and ins $350 per mo or less.
2. Your rental properties qualify with enough cash flow to not be a negative against your personal income, and that you demonstrate to the bank you are an experienced landlord.
3. 20% down will get you best rate.