How to keep going when you hit your DTI (Debt To Income) limit?
Rental Property Investor · South Bend, IN · Member since 2019 · 35 posts · 7 votes
How to keep going when you hit your DTI (Debt To Income) limit?
Most Popular Reply
Lender · Springfield, MO · Member since 2018 · 14 posts · 18 votes
2yHey Bradyn, congrats on your success thus far! As mentioned above, the DSCR route is a great next option for you. There are many great lenders out there who you can use to both acquire and refinance as necessary going forward. Underwriting is asset-based from the income perspective. Meaning, that the rents (or market rents) will need to cover the payment +tax/insurance/HOA of the subject property. Vesting generally will need to be in an entity and the new mortgage will not report as a tradeline under your personal credit. Keep in mind, personal credit score does play into the pricing of these DSCR loans so make sure to keep your score solid! There also is no cap on the number of these loans you can obtain.
Your alternative option to institutional DSCR loans would be in-house commercial loans with banks/credit unions. You can expect each bank to have differing appetites for investment properties so make sure you chat with a few. These loans are generally shorter amortizations (15-25) with fixed rates for 3-7 years. I think it is a great approach to look at both DSCR loans as well as bank commercial loans and place each deal with the option that fits your property/situation at that time. Best of luck as you continue to the next level!
22 Replies
- Lender · Member since 2022 · 441 posts · 134 votes2y
Hey Bradyn, while conventional loans are great. This is always the issue investors run into at some point, that's why you have to look at other lending options. Hard money, private or DCSR lenders. Basing the loan off the property cash flow, or ARV if a value-add loan, allowing you to grow as fast and to as many properties as you want. Rates and points are higher than conventional, but also less paperwork and typically faster than conventional loans. 20% down payment is standard for DSCR or fix n flip lenders.
Happy to connect!
- Rental Property Investor · South Bend, IN · Member since 2019 · 35 posts · 7 votes2y
Thank you for your response, Alex. So does a DSCR essentially function more like a business loan, but wrapped in a mortgage? What I mean is, the bank will look at the value of the property and the viability of it successfully producing net cash?
- Investor · Salt Lake City, UT · Member since 2019 · 339 posts · 126 votes2y
DSCR will solve your problem or partner.
- Lender · Springfield, MO · Member since 2018 · 14 posts · 18 votes2y
Hey Bradyn, congrats on your success thus far! As mentioned above, the DSCR route is a great next option for you. There are many great lenders out there who you can use to both acquire and refinance as necessary going forward. Underwriting is asset-based from the income perspective. Meaning, that the rents (or market rents) will need to cover the payment +tax/insurance/HOA of the subject property. Vesting generally will need to be in an entity and the new mortgage will not report as a tradeline under your personal credit. Keep in mind, personal credit score does play into the pricing of these DSCR loans so make sure to keep your score solid! There also is no cap on the number of these loans you can obtain.
Your alternative option to institutional DSCR loans would be in-house commercial loans with banks/credit unions. You can expect each bank to have differing appetites for investment properties so make sure you chat with a few. These loans are generally shorter amortizations (15-25) with fixed rates for 3-7 years. I think it is a great approach to look at both DSCR loans as well as bank commercial loans and place each deal with the option that fits your property/situation at that time. Best of luck as you continue to the next level!
- Lender · Nationwide · Member since 2022 · 48 posts · 12 votes2y
Quote from @Bradyn Melser:
Hey community. I've been investing for a little while in rentals. I've done a couple methods (including the BRRR). I now have 4 cash flowing rentals and am loving investing, but I have a problem. I hit my DTI with the acquisition of my last 2 properties (I did them in one go). How do I keep acquiring properties and getting them under a mortgage?? No one seems to answer this for me.
Other helpful information:
My income isn't huge, but I've got enough to continue to scale for now. The only debt outstanding I have are these 4 rental properties. 2 I have amazing rates on (3% and 3.5%) and have a decent amount of equity now.Hey Bradyn, as many have mentioned there are alt. income financing methods such as DSCR. The only issue I'm seeing personally with DSCR in this market is that the market rent analysis (typically done using recorded lease agreements in the past 12 months) isn't covering the the mortgage payment due to the higher rates, thus causing a negative DSCR.
The only answer in this case for most lenders is to have you put more money down. I have other alt. income products that I've been using with my clients to help avoid that trouble. I'm happy to connect if you'd like. Best wishes. - Lender · Houston, Tx. · Member since 2023 · 91 posts · 60 votes2y
Just understand what the term debt service coverage ratio actually means before you lease the new acquisitions. You want them to confirm to DSCR and not be capped, as the LTV will be meaningless at that point and therefore you will have to bring substantial cash to close.
But yes, sounds like you have been looking for DSCR.
Also just another note, on most of these you will need to close in an LLC. Through conventional, I am just assuming they are in your name.
- Member since 2021 · 104 posts · 78 votes2y
@Bradyn Melser
Not sure how long you've had the first 2 properties, but something else to keep in mind in case you're not aware. A lot of lenders will let you count the rental income on a property as income, after you've owned them for 2 years. So the rental income from them basically lowers your DTI
- 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Bradyn Melser
I was barely able to get 10 conventional loans with my DTI pretty high. I had to have my wife co sign and be on the loans to make it. I would go with DSCR loans if your DTI is too high. They are so much easier to get as well. I've got 5 of them and all they ask you for is your last two months bank statements. That's it! No W2 verification or tax returns. Good luck!
- 2yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 503 votes
@Bradyn Melser, if you are hitting DTI issues or if you just wanted a lower document loan, DSCR loans are the answer.
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs. Many lenders have better pricing and terms for 1-4 unit DSCR programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23The rent exceeds PITIA.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
Bright Skyline518 Reviews - Member since 2022 · 18 posts · 4 votes2y
DSCR is the best outlet. Solves all your problems
- Lender · Springfield, MO · Member since 2015 · 379 posts · 180 votes2y
Quote from @John Morgan:
@Bradyn Melser
I was barely able to get 10 conventional loans with my DTI pretty high. I had to have my wife co sign and be on the loans to make it. I would go with DSCR loans if your DTI is too high. They are so much easier to get as well. I've got 5 of them and all they ask you for is your last two months bank statements. That's it! No W2 verification or tax returns. Good luck!
"this is the way"
- 2yBrittany MinocchiBusiness MemberLender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
I know everyone has pretty much covered this, but another vote for DSCR. I did want to mention though - you do NOT always have to put the property in an LLC. I have a DSCR lender that actually requires you to close in your personal name, and they don't have prepayment penalties.
Brittany Minocchi - Barrett Financial Group, LLC522 Reviews - Realtor · Athens, GA · Member since 2023 · 201 posts · 104 votes2y
Quote from @Bradyn Melser:
Hey community. I've been investing for a little while in rentals. I've done a couple methods (including the BRRR). I now have 4 cash flowing rentals and am loving investing, but I have a problem. I hit my DTI with the acquisition of my last 2 properties (I did them in one go). How do I keep acquiring properties and getting them under a mortgage?? No one seems to answer this for me.
Other helpful information:
My income isn't huge, but I've got enough to continue to scale for now. The only debt outstanding I have are these 4 rental properties. 2 I have amazing rates on (3% and 3.5%) and have a decent amount of equity now.The DSCR is your most common tactic in this situation. I have utilized another strategy with my local lender that bundled all my properties together and used the equity and cash flow I had to acquire more properties under the same loan for me. It's their in house version of a DSCR but only a 20yr term unfortunately so the monthly cost is higher. You should go talk to lenders in multiple local banks and see who can work with you. If you are cash flowing and stable someone will help you out, they all need loan business right now.
- Rental Property Investor · South Bend, IN · Member since 2019 · 35 posts · 7 votes2y
Quote from @Stacy Raskin:
@Bradyn Melser, if you are hitting DTI issues or if you just wanted a lower document loan, DSCR loans are the answer.
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs. Many lenders have better pricing and terms for 1-4 unit DSCR programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23The rent exceeds PITIA.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
Wow, thank you for these details. Once everyone started writing about DSCR loans, I did a deep dive. This is a great detailed answer though. Thank you!
- 2yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 503 votes
Quote from @Bradyn Melser:
Quote from @Stacy Raskin:
@Bradyn Melser, if you are hitting DTI issues or if you just wanted a lower document loan, DSCR loans are the answer.
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs. Many lenders have better pricing and terms for 1-4 unit DSCR programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23The rent exceeds PITIA.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
Wow, thank you for these details. Once everyone started writing about DSCR loans, I did a deep dive. This is a great detailed answer though. Thank you!
Glad you found it helpful - you're welcome!
Bright Skyline518 Reviews - 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesThat’s it. If the property covers the debt with rent, then you’re good to go. Easiest loans on the planet.
Quote from @Paul Klei:
No other requirements? - Investor · TX · Member since 2023 · 57 posts · 5 votes2y
Quote from @John Morgan:
That’s it. If the property covers the debt with rent, then you’re good to go. Easiest loans on the planet.Quote from @Paul Klei:
No other requirements?I was told they have FICO requirements. I've been trying to find a lender that will underwrite exclusively to the property/cash flow but even hard money lenders often want to see a PFS. What about LTV/LTC? For example if you only need 40% down on a property, way below most lenders' LTV threshold, could this type of loan get up to 100% LTC?
- 2yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Bradyn Melser:
Hey community. I've been investing for a little while in rentals. I've done a couple methods (including the BRRR). I now have 4 cash flowing rentals and am loving investing, but I have a problem. I hit my DTI with the acquisition of my last 2 properties (I did them in one go). How do I keep acquiring properties and getting them under a mortgage?? No one seems to answer this for me.
Other helpful information:
My income isn't huge, but I've got enough to continue to scale for now. The only debt outstanding I have are these 4 rental properties. 2 I have amazing rates on (3% and 3.5%) and have a decent amount of equity now.Question for you. One the last two properties you purchased what is the PITI and what are you bringing in for rent?
The reason I ask is because you would be able to use 75% of the lease amount to cover that PITI payment on the next property you buy. My point is make sure you cant qualify by some one who knows what they are doing before defaulting to a more expensive DSCR loan.
Hurst Real Estate, INC4.991 Reviews - 2yHavan SuratPro MemberVancouver, British Columbia · Member since 2019 · 72 posts · 30 votes
Quote from @Stacy Raskin:
@Bradyn Melser, if you are hitting DTI issues or if you just wanted a lower document loan, DSCR loans are the answer.
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs. Many lenders have better pricing and terms for 1-4 unit DSCR programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23The rent exceeds PITIA.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
very detailed and good info.
- 2yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 503 votes
Quote from @Havan Surat:
Quote from @Stacy Raskin:
@Bradyn Melser, if you are hitting DTI issues or if you just wanted a lower document loan, DSCR loans are the answer.
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs. Many lenders have better pricing and terms for 1-4 unit DSCR programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23The rent exceeds PITIA.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
very detailed and good info.
Glad you found it helpful!
Bright Skyline518 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.