What I Learned about DTI

[Andrew Broxterman]

Hello,

I posted about 1 month ago after a lender told me buying an investment property in an LLC would negatively affect my debt-to-income ratio when buying a personal house in the future. I was super disappointed, as I am itching to get my first rental. The reason he said it would negatively affect my DTI is that banks typically count an entire mortgage against your debt but will only give you 75% of rental income. He was correct, but only because I was going to be a personal guarantor on the loan.

I have talked to 10-15 investors, lenders, and a tax accountant over the last month trying to figure out how to keep an investment property from counting against my DTI. The answers were basically split in half whether an investment property would negatively affect my DTI, and the confusing part was that both sides were very certain of themselves.

My solution is that my investment partner will be the only guarantor on the loan. We had to revise our operating agreement to state that he has a 51% stake in the LLC, leaving me with a 49% stake. All lenders I've talked to require this revision to keep me off the personal guarantee. Banks cannot count an investment property against your DTI if you are not a guarantor on the loan. The tax accountant confirmed this.

If you find yourself in this situation and want to buy an investment property without a partner, the investment property will count against your DTI for a personal mortgage as you will need to be the personal guarantor on the investment loan. This applies even if the property is in an LLC and applies to both conventional and DSCR loans.

Hopefully this saves someone the time I spent trying to figure this out.

[Jaycee Greene]

Quote from @Andrew Broxterman:

Hello,

I posted about 1 month ago after a lender told me buying an investment property in an LLC would negatively affect my debt-to-income ratio when buying a personal house in the future. I was super disappointed, as I am itching to get my first rental. The reason he said it would negatively affect my DTI is that banks typically count an entire mortgage against your debt but will only give you 75% of rental income. He was correct, but only because I was going to be a personal guarantor on the loan.

I have talked to 10-15 investors, lenders, and a tax accountant over the last month trying to figure out how to keep an investment property from counting against my DTI. The answers were basically split in half whether an investment property would negatively affect my DTI, and the confusing part was that both sides were very certain of themselves.

My solution is that my investment partner will be the only guarantor on the loan. We had to revise our operating agreement to state that he has a 51% stake in the LLC, leaving me with a 49% stake. All lenders I've talked to require this revision to keep me off the personal guarantee. Banks cannot count an investment property against your DTI if you are not a guarantor on the loan. The tax accountant confirmed this.

If you find yourself in this situation and want to buy an investment property without a partner, the investment property will count against your DTI for a personal mortgage as you will need to be the personal guarantor on the investment loan. This applies even if the property is in an LLC and applies to both conventional and DSCR loans.

Hopefully this saves someone the time I spent trying to figure this out.

Hey @Andrew Broxterman By only owning 49% of an LLC that owns a single asset, I'd argue you're in a much WORSE situation than you would have been, unless you have an operating agreement where you and majority owner have to agree on everything. Otherwise, they are the GP, and they have final say on everything.

I guess my question is: Why are you concerned about your DTI? Are you trying to borrow money for a home loan as well?