Shouldn't PITIA paid by LLCs be excluded from personal DTI calculation?

Question

I am paying mortgage for all the rentals from business accounts. The only PITIA paid from personal account is for a personal residence. I am trying to get a 5% down first home buyer conventional on a fourplex for my daughter to househack and lender I spoke with says that we need to calculate the debt for all the other properties I own and pay from businesses into DTI.

Is it true? Or am I speaking with a wrong lender? And of so, any lenders in Texas who can help me get this conventional mortgage? My personal residence payments are less than 15% from combined personal income. But if we add all the rentals sure DTI will be over 50%.

Jay Hurst · Answer

The above Fannie/Freddie links are keeping you from double counting the payments on the personal AND LLC level. Any payment will be in a LLC will be held against your DTI. if held in a LLC the payment will be handled though the business which of course also files a tax return called a Form 1065.  The myth LLC disappears the payment  is baffling to me.

BUT, who cares?  You have income coming in on those properties correct? This income  would likely be coming from a K-1 (form 1065), and flowing over to your Schedule E on your personal returns. The way a competent loan officer would handle this is use this form:https://singlefamily.fanniemae.com/media/7746/display

This starts using the income or loss directly from the K-1 which will have already accounted for the P&I on the 1065.   You will notice you can add back depreciation on the adjustments form above.

So, yes, the payment will still be calculated but it is a NET payment that will also account for the income being brought in through the LLC. We do this daily.

Chris Seveney · Answer

While you noted you are paying from business accounts, whose name is on the loans? Is it yours or your LLC? Is there a personal guarantee for the loans?

If the loans are in your name, it does not matter who is paying, they are a debt obligation. If they are non recourse then you would not have to include them but my guess is they are recourse even if in the LLC, so yes you would need to include them.

Jim Collins · Answer

Do you know a different lender with whom I can have this conversation with?

Andrew Postell · Answer

@Jim Collins there is some nuance here....like how you are showing the properties on your tax returns...but all things considered, you should NOT have business debt held against you.  Again, the issues here would be if those properties were structured incorrectly or filed incorrectly....but I think it would certainly be worth having a conversation with a different lender about it.

Jacob Sherman · Answer

If its paid for greater than 12 months and there will still be a vacancy factor calculated

Jim Collins · Answer

It's a mix of personal name and LLC names. Of course they all have personal guarantee.

I am referring to rules Freddie has here https://guide.freddiemac.com/app/guide/section/5401.2 or Fannie has here https://selling-guide.fanniemae.com/sel/b3-6-05/monthly-debt... that debt paid for 12 months or longer by business can be excluded.

Shouldn't PITIA paid by LLCs be excluded from personal DTI calculation?

Most Popular Reply