DTI is too high after buying a house?

Question

Hello,

this lender at gaurenteed rate says my DTI will be too high AFTER i buy this SFH (with FHA) that i will turn into a rental later. Ive always known your DTI has to be below 50 when going to apply for a morgage but never new they consider your DTI after you buy the property. Is this very common across all lenders? any info would help thanks.

River Sava · Answer

Hi Nolan -

Have you explored DSCR loans? No DTIs... might be a good option if you are concerned about this variable

Chris Seveney · Answer

Your DTI for a mortgage is based on the mortgage payment. They will calculate your DTI in two ways. The first is just the mortgage payments which typically cannot exceed around 28%.Then your mortgage payments plus your other debt obligations which typically cannot be greater than 40-48% depending on the lender.

Jon Puente · Answer

Hey Nolan,

Couple of things - An FHA loan can go up to 56.99% backend DTI (max) so you have room if you are only at 50%.

You cannot use a DSCR loan for a primary because they calculate the ratio based on fair market rent.

The only question here is whether you qualify for the house or not upfront.  You can't buy a house and then your DTI be too high for that house, otherwise you would have been denied financing.

When you turn the house into a rental later on, you can use rental income to offset the payment and buy a new home, but it cannot be an FHA loan (you can only have 1 FHA loan open, unless there are extenuating circumstances).

Hope this helps!

Stephanie Medellin · Answer

That's correct - your DTI will include the new mortgage payment that you're applying for.  The lender has to make sure you can afford the new home along with your existing monthly payments.  FHA loans are for primary residences only, and you'll need to certify that you intend to live there for at least a year.  Rental income won't be a consideration right now unless it's a 2 to 4 unit property.

If you turn it into a rental at some point in the future and buy a new primary residence, you should be able to use a portion of the rental income to help qualify for a new home at that point.  Of course, this depends on loan guidelines at that time, the type of loan you use, and your finances in the future.

Raymond J. Rodrigues · Answer

@Nolan Mahoney, if you're looking to buy another primary residence with low down payment, DSCR is not an option you should consider exploring as many may suggest. If you are looking to buy as an investment property, perhaps it's not a bad idea.

If you are looking to buy a new primary with low down payment, in order to circumvent the DTI issue, you need to provide your lender with a lease and two months' rent for your departing residence at closing, so that the debt-to-income ratio is not an issue with your first home being counted against you when buying your second primary residence home.

Sophia Buesing · Answer

You might want to look into DSCR or hard money loans. Both of them don't look into your DTI.

Brayden Hrycko · Answer

Hey @Nolan Mahoney,

Dti is also an overlay for lenders as well. They have their own cutoff for risk. I have had dti in the 50's before. I'd be happy to take a look at your scenario and see what we can do.

Jacob Sherman · Answer

the dti will include all of your monthly debt obligations on your credit report as well as the mortgage payment you're taking on along with property taxes and insurance

DTI is too high after buying a house?

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