Two mortgages at the same time, will they know?

30 Replies

Here's the background: I have an investment property under contract here in the DFW area, and we are actively looking for a primary residence as well. Both together might possibly put me over DTI restrictions. (I've got two others in my name as well)

So I was wondering, if I apply for both mortgages as the same time, will each one know about the other?  For my other loans, the credit checks were run a couple of weeks before closing, so at the time the reports are run, neither of these loans would show.  Is this information that I need to disclose? 

To be clear, I'm not trying to be fraudulent! But if it's not totally against the rules, I'd love to maximize my borrowing power.  If I'm not able to do it, we'll have to put one of them in my husband's name, but again, I'm trying to maximize our borrowing power. 

Yup, and this will screw up at least one of the two deals.

I wouldn't assume your DTI will be an issue at all, provided the investment property cashflows.

@Chris Mason Thanks for the response!

Just out of curiosity, they will know because I have to tell them, or because there's a system in place to let them know that this is going on?

Also, why won't the cashflowing property be a problem?  I don't think it will cashflow at 43% of the mortgage payment, so wouldn't the loan add more to the debt, than the rent will ad to my income, hence worsening my ratio?

Originally posted by @Rivy S. :

@Chris Mason Thanks for the response!

Just out of curiosity, they will know because I have to tell them, or because there's a system in place to let them know that this is going on?

Also, why won't the cashflowing property be a problem?  I don't think it will cashflow at 43% of the mortgage payment, so wouldn't the loan add more to the debt, than the rent will ad to my income, hence worsening my ratio?

 Hi Rivy,

Q1: Both. Lender will find out, and it's a huge flag when underwriting finds out that you were trying to hide it.

Q2: Someone is feeding you bad math. That's owner occupied 2-4 unit math, not investment property math. Pure investment property math is far more generous. [ Rent * 75% - PITI = X ] If X is a positive number, your DTI is improved and there is no liability included in the DTI math. If X is slightly negative, say -$175, then that $175 is included as a debt (but not the entire PITI).

Do them concurrently & be transparent with your lender. Close both at once.

@Chris Mason I actually made up that math myself, I just assumed that's how it works.  Thank you for enlightening me! So just to summarize, investment property debt doesn't count as debt, it just offsets your income? Will that be true no matter what lender I go with?

@Rivy S.  I have been following @Chris Mason posts and the guy knows his stuff, and I 100% agree, they will find out and it won't end well.  Pre 2008 , it wouldn't be that big of a deal lenders were awash with money and lax credit criteria.  What used to be so so gray areas are more black and white these days.  play it safe. wish you the best

To clarify, some lenders have overlays, which might not allow you to count the rental income until you have received it for 24 months or something like that. Check around or find a good mortgage broker who knows which banks don't have such an overlay.

@Bill Hamilton do you mean the rental income on each unit will not count I've owned it for two years? Or do you mean that a lender will not count my rental income until *I* have collected any rental income for two years?

@Diane G. it's not fraud if you don't lie. I wouldn't lie if they asked, I just wanted to know if a) it's information i will be required to share and b) if I don't need to share, would they know anyway

@Rivy S. Some lenders won't use the rental income until you personally have collected it for two years. The same way some/many lenders won't count your income from a second job until you have worked at it for two years. Or even your primary job if it is a big change from what you were previously doing. For instance, if I switched from being mid level management to doing sales (even in the same company) the lender might decide that I have no track record in sales and therefore my income is not stable until I have been making it in that position for two years.

@Rivy S.   Straight from dictionary...So yes, it is fraud.....

"The main purpose of fraud is to gain something of value (usually money or property) by misleading or deceiving someone into thinking something which the fraud perpetrator knows to be false."

You mislead the lender into thinking you only have one loan.

Originally posted by @Rivy S. :

@Chris Mason I actually made up that math myself, I just assumed that's how it works.  Thank you for enlightening me! So just to summarize, investment property debt doesn't count as debt, it just offsets your income? Will that be true no matter what lender I go with?

 Alas, no. For two reasons.

1) Overlays. See link.

2) MLO incompetence. Underwriters by contrast generally know their stuff, but it is not their job to restructure deals that someone screwed up at the submission phase. Literally none of our pre-licensing education, or the test we have to take to get licensed, covers anything to do with counting rental income. You can do a whole 30 year career as a MLO, and be successful, without learning it. 

If you were going hard money or a personal loan on one, that didn't pull credit, you might get away with it.  But I'm not sure if "getting away with it" should be the goal.

@Rivy S. My experience is a little different than mentioned above. I applied for a commercial loan and a HELOC with one of the large national banks at the same time. I answered everything on the applications honestly and I started the loan process and closed both loans within the a few days of each other. The process took several months.

My theory on how this happened was either they knew that I was applying for both loans concurrently and looked at the DTI and it still worked, or they had no idea and when they looked at my credit pulls they saw their their bank name on the credit pull history. They may have just thought it was them who pulled credit for the loan that they were working on. During the whole process they never once asked me about the other loan that I was concurrently applying for at the same bank.

Needless to say, with so many reasons why working with a large bank as an investor is frustrating and usually disappointing, one positive thing about working with such a large bank is that the right hand has no idea about what the left hand is doing.  Thus, ultimately, I was able to get 2 large loans (426k and 200k) from the same bank at the same time.  

@Chris Mason  so is it a matter of incompetence to not count rental income, or is it a different approach to lending, which is legitimate?  The difference would be that if it's a different approach, I will need an investor friendly lender for my primary residence, even though it's not an investment, so that they will count my rental income from my other properties.  As opposed to if it's just incompetence than I can find one who is more competent.  

@Shiloh Lundahl that's interesting! Sounds like you lucked out. But aren't commercial loans based more on the financials of the property, rather than on your personal DTI?

Someone correct me if I'm wrong but it's my understanding there is a system in place that will notify the lender of both loans. It might be only for certain types of loans like FHA but I ran into a similar situation with a client and the lender told me there is a "system" that indicates a loan has been originated on a property. The situation was slightly different, and not 2 loans on 2 houses, but 2 loans on the same house, and different times. For example they were going to refi as an "investment" property because they were going to rent it but their plans changed so they were going to refi as owner occupants and there was record somewhere that they had tried to do the prior loan. Again this was my understanding of the situation as explained to me by my mortgage broker, I'm an agent and don't know the specifics but thought I'd share. If a lender wants to correct me feel free. Hope it works out for you. I'd most definitely be honest, at the very least just run a "what if" scenario by your mortgage guy. Ask him if it would be possible and if you would qualify for a simultaneous purchase of an investment. They can easily run the numbers for your DTI to determine you eligibility.

@Rivy S. I believe that that is the case most of the time. However, the commercial building that I purchased was only half filled. So they were basing the loan on my income from my counseling business which Was the revenue that fed my personal income which was what was used in order to get the HELOC.

@Rivy S.

@Chris Mason Is right on the calcs, the math for owner occupied rental's are different than rental calcs on non owner. He explained it in a very simple way which is hard to do especially on a forum like this but to reiterate the math on owner occupied calculates income separately and adds it to income and the PITIA or monthly obligation separately and adds it to your total outstanding monthly obligation. 

This is different than non owner occupied properties which allows you to "net," the monthly net rental income against your PITIA and only counts the resulting number from this calculation as negative (against you) or positive (helps improve, aka lower your DTI, aka "helps you qualify for more as a result of buying this investment/non owner property).

So assuming your non owner property is "positive," income or cash flow using 75% of rental income - PITIA your DTI will be improved.

The concern at that point would be focused now on the primary residence since that has no income offsets and is a complete liability/obligation against your income to determine your qualification.

So the main concern is the primary residence.

As for will the lenders find out ? Yeah they wiill see your inquiries on your credit report so unless you lie they will "know."

Lenders, also run a soft credit pull 3 days prior to docs and verbal verification of employment as well before issuing docs to sign/fund/record/close.

Hope that helps.

@Albert Bui Thanks for detailed response! So one more question about this whole DTI thing. When qualifying for a loan on an investment property, are you saying that *that* properties potential rental income (adjusted by .75%, etc) goes into the DTI equation? Or are you saying that *all* of my rental income goes into the equation? Example: Let's say I've got 3 rental properties, each has rent of 1200 and monthly payment of 500. So each one has a net income of 400. I'm applying for a 4th property that should meet the same numbers. Is 1200, 1600, or 400 added to my w2 income?

Originally posted by @Rivy S. :

@Albert Bui Thanks for detailed response! So one more question about this whole DTI thing. When qualifying for a loan on an investment property, are you saying that *that* properties potential rental income (adjusted by .75%, etc) goes into the DTI equation? Or are you saying that *all* of my rental income goes into the equation? Example: Let's say I've got 3 rental properties, each has rent of 1200 and monthly payment of 500. So each one has a net income of 400. I'm applying for a 4th property that should meet the same numbers. Is 1200, 1600, or 400 added to my w2 income?

Current properties use tax returns or 75% if you can sell the UW (art &science) to calculate income and properties Purchased subsequent to the first tax return use 75% of gross minus PITIA.

Current properties are another story initially we were talking about purchase income calculation and primary residences in each context the calculation varies.

PM me if you have specific questions about rental calcs or how to file it favorably. Pre planning often times can make your life a lot easier when approaching banks.

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