Future Rental Income DTI Miscalculation???

Question

Hi everyone,Hubby is in the process of getting a conventional loan for a single family investment property. Put 25% down and tons of reserves (over 100k). He has also owned and managed multiple properties for several years. My issue is that he's getting burnt on my DTI because they are counting the full mortgage against the DTI, even though the property is going to rented immediately after it closes. So there is a negative -700 monthly mortgage of a place that will be rented that is being added to the debt. Yikes!

Correct me if I'm wrong here, but Fannie Mae B3-3.1-08 says that the lender needs to calculate the monthly income for qualifying purposes.  There is no lease.  Single Family Comparable Rent Schedule Form 1007, I believe?

Isn't calculation Market Rent x .75 - PITIA = Projected Rental Income (which should add positively to the income)

So I checked the appraisal and saw that they didn't do a Form 1007 or have anything listed regarding rental income.

What should he do here?  Request they send the appraiser back out?

JD Martin · Answer

Well, your issue is that you don't have the property leased right now so you have no income - it's all theoretical. Once you have a track record (12-24 months is common), then you get to include the rent as part of your income. It's really no different than counting the theoretical income from the job that you plan to get to pay the mortgage. I don't think what you are quoting will apply because you don't have any documentation of rental income on this property or an executed lease agreement. Also, I'm pretty sure it is up to the lender whether they want to try to count the income from an executed lease but that doesn't exist (rather than they "must" include it as you wrote).

What it sounds like is that you either need more income or less debt. Short-term, the quickest way to that is probably to add another person to the application (you). Since your obligations are probably held jointly, the income you make (if you have an income) would help reduce the DTI levels. Or you can start over with another lender that may try to jump through some of those F/F hoops. My guess is no one is going to do so.

This is not an uncommon problem. One issue with being an investor is you generally have to have your own debt under control first and keep that in mind if you plan on borrowing money to buy investments.