Will a hard money loan affect your debt to income ratio?

3 Replies

I plan to use a HELOC to buy my first property with cash in order to BRRRR. I'm wondering if this will affect my ability to refinance the property since it will give me a higher debt to income ratio.

If I use hard money to buy a property will banks 'see' that and count it toward my DTI ratio?

Thanks for your input!

Hi Amy,

Regarding the HELOC D/I ratio - after you renovate and put renters in there, your refinance should be looking to pay off most, if not all, of that HELOC which would not cause your D/I ratio to hinder you. The lender will know you are paying that loan off and it shouldn't count against your qualification for the refi. Also, depending on your investment history, the lender should be using a portion of that rent as income to further help your D/I. (Rent is $1000/mo, lender counts $600 towards your income).

As for HMLs, it probably depends on who is doing it whether its reported to the credit bureaus (personal aquantaince Vs. professional lender). But, the lender is going to ask where the purchase funds came from normally if it's a quick turn around. Also, any recorded trust indenture tied to the property is going to show on the title report, which the lender will see. So, in summation, yes, the lender will be using any loan payments toward your D/I. Last, the same situation would apply here as with the HELOC, if your refi is paying it off, it shouldn't matter.

Hi @Amy Parra , I finance investors all the time and I have loans that don't factor in your DTI. Qualification is based on the debt service of the property. This usually means unlimited amount of financed properties.

You should not have much problem with the HELOC scenario you described above. I would say, if you used the HELOC as down payment, then you might see a jump to your DTI. But as buying all cash, such as you said. Good luck!